Stan,
In reality, with the Littleton machine, the shot only falls about an INCH before entering the coolant mixture. The coolant tank (full of liquid coolant) takes the place of the LOOOONG column of air necessary for air-cooled, dropped shot. The difference is the distance it takes to drop and form round spheres in different cooling media. If you want to use air, you have to drop over a hundred feet to allow it to round-out, and then cool sufficiently to harden enough that it doesn't deform when it hits the water "cushion" at the bottom. In this case, the water is primarily there to act as a cushion rather than a coolant.
With the Littleton machine, you are using a liquid coolant to take the place of the 150 ft. drop. The height of the drip nozzles above the coolant surface is critical to shot-roundness. If you get it closer than, say, about an inch, the stream coming from the drippers hasn't broken up into little "driplets" and is more of a solid stream (you can demonstrate this effect by playing around with the flow of a tiny stream of water from your faucet). However if you get much below the point of where the driplets begin to form, you will get very un-uniform shot as well because the shot begins to change from liquid to solid immediately (it hasn't fallen far enough to be round, but it has fallen far enough to not be 100% fluid). Therefore it will hit the coolant in a state that will not continue to progress towards a spherical shape as it sinks to the bottom. Also, the "splash" impact may play a role in deformity. Therefore, the ideal height is right below where the stream of liquid lead from the drippers begins to break up into driplets, so that the "drips" enter the coolant in a pure liquid state, as gently as possible, so that they will be fairly round on entry, and continue to round-out as they sink and cool.
The water-soluble oil is used as a cutting oil in some machining operations. There are several reasons for its use, but I think the main one may be that it is the ideal viscosity, to provide the right sink- and cooling-rates. One challenge in making extended runs of shot is that the hot molten lead begins to heat up the coolant tank over time. When the coolant gets hot enough, it doesn't cool the sinking shot quick enough, and you begin to get shot that is flattening out as it hits the bottom of the tank. This is why it is critical to have a circulating pump that runs the coolant through a radiator or other cooling system.
The vast majority of what I shoot comes from a Littleton machine, operated once a year by a friend of mine. It is NOT as round as factory (air-dropped) shot, no matter how skilled the operator is. There are things you can do to screen-out the worst shot and keep the best (rolling plates, etc.) but we have found it to be pretty un-necessary. We just shoot it all, not counting the abnormal "mistakes" that happen when the coolant heats up too much, etc. He runs somewhere between 1 to 2 tons for a small group of us (we provide the wheel weights, pre-melted, skimmed, and poured into ingots for him).