Tom - depth of cut will be tricky, as the portion of the blade contacting the work material will be buried/not in view.
How about using a good rotary encoder (maybe even optical, but they get pricey) on your blade height adjustment? This would be a good excuse to create a digital readout on the Arduino as well.
Naturally the accuracy will be limited by how many bux you are willing to drop on the encoder.
Then you can calibrate where the top of the blade is relative to the surface of the machine, and work from there. There prob will be some play in the height-adjusting screw so you'd need to allow for that in each use.
Another help for setting it up would be to have a DC voltage (9v battery, etc) tied to the machine,
and make a non-conductive height gauge with a metal contact surface. This would set on the table surface, and when the blade touches the contact, the circuit is closed, and an LED would light - and you can read the height from you digital display.