Has everybody lost sight of the original problem in all this theoretical discussion? The setscrew is at an oddball angle in a difficult location on a big piece of equipment that would be impossible to set up in a mill, an EDM, or any other sophisticated piece of equipment. This one is going to end up as a very tedious operation with hand tools with two possibilities of success- - - -slim and none. I would choose a diamond-dust burr in a variable-speed tool like a Foredom flex-shaft device, the same way I deal with broken-off #6 screws in rifle receivers. Now, to really increase the pucker factor, try removing a broken scope mount screw on a $15,000.00 custom engraved Mauser, made before WW II by a German master gunsmith!
Jerry