drilling out lugs from hub, disc brake upgrade

The studs are slightly wedged and must be removed from the rear punched out towards the brake shoes. If you grind off the heads and punch them out forward after removing the axles you are going to have a problem because then you are inlarging the hole because you're pulling the wedge forward not putting in the same way it was put in. Thus increasing the radius of the hole
Yes, grind the head off and push it out from that side. Swedge never goes back through splined hole.