5 thou is way too much IMO also, but I have heard of guys wanting a "loose" fit, and then swelling things up a little bit when peening (still, not 5 thou, I'm guessing you guys were using pin stock that was slightly oversized Harbeer). You've got some latitude to do this with certain construction methodologies, like all stainless, with pinned or screw attached scales, where you pin everything together, and then finish grind it all together as an already constructed knife. I think this allows some fudge room for improperly aligned holes in the various components, but ultimately I don't agree with this approach, and I think you can often see this in the fine detail of a knife made this way. Little gaps, or alignment issues here or there. Stuff most people will consider acceptable, but that puts it a few percent away from 99/100, IMO.
With the materials and methods I use, where every individual component (blade, spring, liners, scales, etc) has to be completely and finely finished before gluing the scales to the liners, and finally pinning it all together (that's the absolute last step, no room to clean up afterwards), for instance with damascus or other etched materials, and ivory or pearl. I have no room to clean up anything that gets skewed. I want everything as tight and dimensionally accurate as possible to start with. If something goes out of whack when I pin it, even a tiny amount due to smacking the pivot or spring pins in such a way that they swell unevenly or upset excessively, I've got to rip it all apart, fix whatever damage I did in doing so, and try again.
It also precludes me from using a lot of "tip alignment" tricks, that rely on intentionally "skewing" the pivot pin, or shifting it after it's nailed together. I can't "grind the tip" to center on closed either, which you can easily do when using mono-steel construction. Don know's what I'm talking about here.
With a bushing, you want the bushing to fit inside the tang hole, tight enough to stay in on it's own, with just enough clearance to rotate. Any more than this, and you risk there being some bounce/wobble in any position you can feel as looseness when you go to rotate the blade to the next position, it'll "rock" in the position a little, if it's bad enough, you'll have side-to-side blade wobble in the open position.
With or without a bushing, I don't personally find it necessary to ream bolsters/liners. In a perfect world, you want to swell the pin to fill a tapered hole in the bolsters regardless, however, you don't want an oversized hole here, so I typically do ream it, JIC, to avoid alignment issues. If this hole is oversized enough to allow the temp pins to wobble, it may shift when peening.
Regardless, the more slop you have, the more likely a pin is to swell or tilt unevenly when it is peened, which'll have you wondering what you screwed up previously, when one liner is slightly higher than the other, or you tip lands a tiny bit crooked after peening. If you nail everything together and then grind the blade, finish grind the liners/scales on you'll never notice it most likely, but it's really limiting your range, and you'll play hell when you try to use more exotic materials later.
I honestly believe that's why you see certain top slipjoint makers never branching out with certain materials, their methods simply don't allow good results with them. That's fine, they've learned to do things a certain way and get great results. For me, being able to utilize complex materials and tricky/different construction styles is much of the appeal though.
