The mineral spirits flash off and the oil drys, leaving behind a resin film. Mineral spirits won't dissolve or ruin the finish.
When I wet sand a final polish, I use mineral spirits as the lube. Never a problem.
As far as Waterlox goes, the actual scientific chemical breakdown is 50% old tires, 50% dead skunks. I can't believe you used that vile stuff indoors!
I've never measured my fence for flatness but honestly don't think I would be worried about 8 though. I don't cut joinery along the fence and an 8 thousandth deviation along a rip wouldn't make me blink an eye.