I'm of the opinion that a mill/drill and a separate little lathe is best. The reason being, the mill/lathe combos run the cross slide so far above the ways that flexibility is a problem. And the head of the mill ends up with a lot of distance between the cutter around to the table. It is better to have small separate units optimized for their function. Otherwise they don't have a lot going for them due to the compromises in their design.
I had the chance to use a small (9X20) jet lathe and found it to be a pleasure to use. I put several hours on one and was really impressed with it.
Personally, I disagree with the advice to get an old South Bend lathe (no offense Page, I usually agree with your observations). They weren't particularity good lathes when new, and lathes show wear worse than most machine tools. Compound that by the fact they didn't have hardened ways, and had babbit bushings for the spindle, and I haven't found old specimens to be very good. I'm sure there are exceptions, but I've used quite a few that were pretty bad.
Speaking from experience, I think a new import lathe is likely better overall. They vibrate and the dials are a joke, but when pressed they do the job with surprisingly good finish and accuracy. They're still tight and can take a heavy cut without a lot of drama.
I think a used mill should be fine. They don't wear the same as a lathe. I've installed and run a few new mills over the last couple years, and they all broke down more than most of the used machines over the same time period, I guess because the bugs needed to be worked out.
...my .02...
