Monty,
Are you talking about the little 4" mini grinder... like this one?
If so, the 1 1/2 inch goes in the bottom and the 36 mm is for the crank handle in the top... if this is the right one, you drill the bottom at 1 1/2 for 3/8" deep, then switch to the 1 1/16 for 3 1/2 inches, then reverse the blank and drill the top hole... I usually have between 1/2 and 3/4" of wood in the top where the handle fits...
I just bought their "Midi" 6 1/2" crank grinder and tried a couple of them today... they drill the same way, except the directions calls for a 4" deep drill on the 1 1/16... I took it to almost 5 inches and still had my 1/2 to 3/4" of wood on the top... haven't assembled yet, but looks to be same assembly.
PSI has also just come out with another PKGRIND7 series that has 3 different shaft lengths... I bought 6 of those, but haven't tried them yet... they just arrived today.
I bought them through Woodturningz, but first saw them in the PSI catalog.