[Courtesy of Joel Foner, joel.foner "at" fonerassoc.com July 1998]
This idea was borne out of frustration with the almost unbelievable smell of melting EPP (many kits recommend melting out the openings with a soldering iron, which generates smells which shouldn't ever exist on this planet!), and the "modelers frustration" with the sloppy, rocky bottoms caused by trying to cut openings with a razor blade. This technique assumes that you have a Dremel MotoTool (either the MultiPro, or a regular one with a speed control).
1) Go to Home Depot or anywhere that stocks a variety of Dremel add-ons
2) Buy a "Tile Cutter" bit (this is what they're called - it's a bit which is not fluted like a drill, instead it's got a set of pyramid-shaped bumps all over it), or even better pick up one of the #566 Tile Cutting Kits shown below - the little router-like base makes lots of stuff easy!
3) Set your Dremel (assuming you've got a MultiPro or a speed control unit) on about 2-3 out of 5 on the speed dial, and cut out the openings holding the tool vertically, like a router. Speed should be high enough to cut smoothly, but not high enough to melt the foam. When you get the speed right, you'll get very slight variations in resistance as you pass through the "cells" of EPP, but it will cut in general "like butter" without fully melting. Check this out with the EPP scrap that came with your kit - it'll only take a minute or two to find the right speed.
4) Do the outline of a servo, receiver or battery well at the depth you want for the well. Then rout back and forth through the "middle" of the cutout area - about 1/8" apart. Then either pull out the pieces with a tweezers or rout around a bit to knock these middle pieces out (much easier to do with Dremel in hand than the explanation sounds like)
You'll end up with smooooth servo cavity walls, no evil smell, and much better control over both geometry of the hole and depth control. This also works very well for routing pushrod runs along the fuselage sides.
There's also a router kit (#566) for about $20 or so that adds a little router base to the Dremel, allowing you to set a specific cut depth. With this I've been able to do wells that are just about as smooth, even on the bottom, as hot-wired. (This kit is the plastic one which tapers outward to about 3" diameter from the Dremel - not the one with metal support bars).
Here is a picture of the Dremel #566 "Tile Cutting Kit", showing both the router-like base and the shape and surface of the tile cutter bit: