Paul,
I keep my BLO in a small bottle to make it easy to pour. I just fold up the paper towel a few times, until I have about a 1-1.5" wide piece. Then I pour enough BLO to cover about a 1" square section near the tip of the folded towel. Not enough to saturate the paper towel, mind you, but enough to get it "wet". While the lathe is running, I rub the BLO on one of the turned and sanded blanks, getting a nice even coat on that piece. I then apply the first coat of thin CA, working my way from one end of the blank to the other. As I do this, I can see where the CA has been applied, because it changes the "shininess" of the blank.
Once I've applied an even CA coat down the length of the blank, I rub the paper towel back and forth a few times, until the CA is dry. At this point the CA on the paper towel has hardened too, so I switch to another section of the paper towel and repeat the process for the other pen blank. Once I'm done with each half, I look at the finish; if it is pretty even, then I switch to the thick stuff; if not, I repeat with another coat of the thin. In either case, I use a little less BLO on the 2nd through nth stages than I do the first time, but still enough to leave a little shine on the blank; otherwise, the process for the subsequent coats are the same as the first coat.
I've been lucky so far and not had too many problems with "orange peel" or other finish issues (of course, now that I've said this, Murphy is hopping in his car and driving to VA). When it has happened, I've started with 1500 grit MM to knock it back down and worked my way through the MM again, with the finish coming out pretty good.
Hope this helps! Oh, and PLEASE read my footer carefully...I've only done about 20 pens, so my advice should be taken with a grain of salt!