Assuming flood coolant, through-the-wheel would be even better:
How much depth of cut can I take?
Depends on the machine and the material.
If you plunge grind on D2, i have trouble imagining more than .0005 down per pass. Maybe better .0003.
If you incremental feed, without looking back at you posts on page one, my memory is that tolerace is easy and depth is under .020; if you use Buck's method for dressing to size, you can take it all in one pass. And you won't have to to dress very often.
I suppose i should qualitfy that. If the grindier is grinding mostly parallel after the mill made the taper, the above is true. If the grinder is grinding the taper, you better do it in 2 passes with a heavy rough and a light finish. This is because on small grinders, the head does/can float a bit, so it will grind less at the end with the heavy cut, and more at the end with the shallow cut. Though even there, it will be more uniform with incremental than it would be with plunge.
Am I better off taking deeper cuts and shorter cross feed? Or take shallow cuts and big step overs?
You have to try both and see what you prefer. Shallow cuts and big step overs means you have to be standing working the grinder (without auto Y/downfeed) . It also means on D2 you might be dressing the wheel every pass or every couple passes.
As mentioned, i think you can take it all in one pass at your tolerance and spec, with incremental, and the finish will be shinier and more uniform. (So long as you have a good filter, and grind clean). You won't have to dress very often, but when necessary, it will require the entire wear step to come off the wheel. The wear step in the wheel will be the depth of your grind pass.
I would start with 46 J wheel, 8 or so porosity. More is better but you don't need induced porosity unless you are trying to grind dry (don't bother

) Buck has spec's on Radiac wheels that really hold their shape and grind aggressively yet cool. I found a source for NOS 7" 46J wheels from a recent but now obsolete mfg'r at $4 each and they are quite good, but not quite as good as the Radiacs or some old NOS Nortons. D2 might benefit from some of the doped wheels or even 5SG, but that is well out of my knowlege base. I use both, but my experience with the exotic wheels is not broad enough to make knowledgeable recommendations.
If you can find them, you might even try 36 J.
If your wheel gets used up too fast and the wear ledge quickly becomes a wear ramp, you could go harder on whatever hardness you start with. If the wheel burns at all (probably won't with controlled incremental infeed) or if the wear ledge does not develop at all and sort of rounds and stops cutting, go softer.
I'm sure Buck or Ed K will be able to correct me, listen to whatever they have to say first. Buck has helped me directly over the years, and reading Ed definitely improved a lot of my understanding and approach to various machining topics
smt