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@gbj_tester
And he's dead now. Just sayin'.
Seriously, modding the axle is the right way, but with caveats:
You should grind the axle equally on opposite sides, don't just hack everything off one side. You should be aiming for an axle which will fit the hole in an anti-rotation washer, not a D-shape.
You need to make the flats on each end of the axle line up (fairly) precisely, otherwise it won't fit in both sides at once.
You will need a die of the same thread form as the axle to deburr it after creating the flats. If you don't have one, make sure you leave one of the nuts on the axle inboard of the flats, as it will be much easier to unscrew it off the axle to act as a die than to screw it on after you've ground the flats.
Obviously, to do the above properly, you'll need to completely remove the axle from the hub and hold it in some kind of fixture which will allow you to keep it from rotating while you grind the two ends.
I doubt that those cheap and nasty dropouts are so precisely aligned to start with that you're going to make things worse by just taking a Dremel to the lower edge of the slot.