My dad built a timber-frame home that required a square-hole drill press device. The technique described above is far cooler, but the thing built by the nice boys at Mikita worked just fine, drilled really nice square chunks out of stuff. Seems like it was a normal round bit right down the middle with corner-cutter doo-dads -- little sharp horns that sliced the corners out of the corner-space and pushed them out into the middle. Worked a lot easier than it sounds.
Dan