I've tried to open up port holes, but it is not coming out just the way I want it to. I've also noticed that some modellers get rid of a lot of material inside the hulls as seen here:
http://uboat.imodeller.cz/7c2en.htm

I like that effect, but I can see where it would have to become a skill to get it right without ruining the model.

I'm also wondering if this material is removed before the holes are drilled? Seems that it would make drilling easier that way, but also increase the chance of making a mistake, since walls will be thinner.

Also, it looks as if a fixed drill may work better. I might also look into finding a dremel-like tool that operates at very slow speeds.

Any tips and suggestions would be greatly appreciated!

Ahoy, mate!

You hit the nail on the head here, Ion!
I use a Dremel with variable speed, and a new carbide burr when doing delicate trimming/grinding with portholes and the like. . .take your time, think twice, cut once!
~Gunny