Todd,
Lots of stuff for you here. The overhang is a preference unless you are going more than a quarter of the tile.
You can go down to 1/8" or even 1/16" for the grout joint.
I would use epoxy grout in the kitchen. It will dry with some polish. Make sure you use a sealer on the stone before you grout. It will act as a grout release and prevent the stone from getting stained by the grout. Use this:
http://www.defusco.com/Glues:-Epoxy,-Polyester,-etc.-Hydrex-Sealer/c82_502/p2095/TENAX-IMPREGNATOR-AND-SEALER---1-LITER/product_info.htmlSilicon carbide will work but will take forever on granite. It is much better on softer materials like marble or travertine. If you own a variable speed grinder here is a low cost diamond polishing pad set that will give you professional results dry polishing.:
http://www.defusco.com/Diamond-Products-Diamond-Polishing-Pads-&-Backers-Diamante-Italia-422-dry-resin-pol/c25_30_652/p2009/422-RESIN-DRY-POLISHING-PAD---FULL-SET/product_info.htmlThe substrate you describe is good for stone tiles. Use a latex thinset for adhesion.
Glad to be of service,
Mark