Steve Featherkile said:
According to Del Tapparo of [url=http://1stclass.mylargescale.com/DelTapparo/]G Scale Graphics[/url], the smallest that you can cut vinyl lettering is about 1/4 inch. Even at that, it is kind of dicey.
I've been working in a sign shop for about a month. They do a lot of cut vinyl lettering. I asked the expert who has been running the vinyl cutter since they opened. His answer was similar to Del's. The machine will print smaller, but the problem is "weeding". Vinyl cutters make the cut lines in a solid sheet of vinyl. You then need to weed out the unwanted vinyl around and inside the letters. The smaller the letter the more difficult. It was suggested that if I wanted really small letters I should cut 10 sets and I might end up with one good one. Weeding under high magnification with very small tools is also needed.
More interesting to me in the old Gerber Edge thermal printing system. It can print spot color, including white, on any color vinyl, including clear. It also has a companion cutter.