Thanks Gav.
I put a fresh coat of Tru-Oil on tonight; the gloss and grain patterns prior to cutting back with steel wool have returned - without the unwanted surface lumps and bumps. It's not the final coat - but I'm relieved that I haven't gone backwards. :-)
I missed the most important part of your post: /<\\/p>[]<\\/p>/wet-sand.
My brother told me not to wet-sand - so clearly that was wrong... :P
I tried P1200 grit wet&dry with methylated spirits, and it worked a treat! No dust, no clogged sandpaper (& scratches), and a lot less effort. (But don't skimp on the metho, and don't use cork sanding blocks.)
I sanded back "all" of the Tru-Oil to remove as many surface defects as possible. There were some shiny Tru-Oil patches left behind deep in the grain, but the fluffy basswood fibres didn't return. I think that's why people suggest only sanding to approx. P400 grit; until you get the first "sealing" coat on, you're just fighting the fibres.
I'm still working on the finish. I think I'll need a fresh bottle of Tru-Oil for the finish coat(s), but I'm learning by trial and error - and not in a hurry.