Although a D bit for a parallel sided hole needs no relief on the sides of the tool, the same is not true for a form cutter, which is what the OP is making and using.
The curved portion requires relief, which should be terminated just past the intersection of the radius with the parallel sides so the form cutter can cut instead of rubbing.
The OP has another thing working against him; both the workpiece and the cutting tool are made of the same steel; the only difference being the hardness of the cutter compared to the workpiece.
This makes any entrapped chips more prone to gall on the sides of the bore, and it looks as though there has been some of that occurring.
It's visible on the body of the D bit up near the point.
Switching to something like A2 or HSS will likely help although it's going to be much more difficult to make the form cutter if HSS is chosen.
In any event, insufficient or no relief on the curved front of the tool is likely what's causing the bulk of his trouble.
That and his expectations of a mirror finish from a form tool in a steel like O-1 which tears quite easily in the annealed state especially when a wide chip is taken at low surface speed.
Another big help would be a pressure lubricant rig like the gunsmiths use when they chamber a barrel.
Flushing the chips out the back as they are generated is super helpful to get the best possible finish and the continuous flood lubricant keeps "built up edge" to a minimum.
Another worthwhile experiment would be to harden the workpiece and then draw it back to 32 RC or so, and see if that improves the finish.
Sometimes it can be a big help to get the steel just a bit harder than annealed; the chips come off better and the tearing goes away.
Last is a change in workpiece material is worth considering; I've had good success with 17-4 PH condition H900 in similar applications.
Stressproof or Leadloy or 303 stainless might also be worth experimenting with if their softness is not a problem for the application.
Cheers
Marcus
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