Absolutely shellac will cure your problem. Half pound cut work great or just use the stuff out of the can. Couple coats and you are good to go. Also always use before cutting binding ledges.
I agree and recommend the use of shellac and a shallow primary cut for a first pass. You should also be using a spiral "downcut" bit, carbide if you can afford it (it will stay sharp and last longer). Whilst I've never cut a rosette, I do furniture inlay work, sometimes on highly figured wood. I've found that the downcut made a world of difference in the clean-ness of cut.
You're a brave man! I know my limitations, and I often push the limits, but rosettes and inlays are beyond me. It looks so simple when people do those things online.
Good luck. FWIW, I went to the StewMac site again and noticed two other suggestions on a related topic (cutting inlays). "Go slow" was the first, and second, don't go any deeper than the diameter of the bit. The latter seems kind of counter to what we've suggested here, especially if you're using a 1/8" bit !! I think that maybe for more the tiny bits used to clean corners of fine inlays. Regardless, starting with a cleaning, shallow cut in the first pass, maybe a third at a time.
