I agree that your calculations appear to be correct, and that the wheel speed is actually faster for the bench grinder than for the dremel, even given dramatic differences at motor rpm.

I'm just not so sure that this translates into less friction and therefore heat. And I believe the reason is due to the pressure per square inch, or, the amount of pressure spread out over what area.

If you take a certain amount of applied pressure and spread it over a small area, such as the contact area of the dremel tool, it will have a certain pressure per square inch. If you take that same pressure and spread it over a larger area, such as the greater area of the bench grinder's contact surface, it will translate to less pressure per square inch. This is dividing the given pressure by the area to which it is being applied. By decreasing the pressure per square inch as in the grinder example, this will reduce the amount of friction, which, given the same wheel speeds, will decrease the generated heat. All this meaning that if we set the bench grinder and dremel motor rpms accounting for wheel diameter such that the end wheel speeds are the same, and we use the same pressure with either tool, then it's down to the one with more friction will generate more heat. Given the same applied pressure, say even just the weight of the blade, the dremel will produce significantly more heat. Granted, the generated heat will be contained to the (relatively) small contact area of the dremel. Since this contact area is pretty small, the heat that is generated may not cause any problems, and certainly not as many problems as if the same heat were generated in the much larger contact area of the bench grinder. Either way, given these (reasonable) circumstances, the dremel is actually producing much more heat.

I think. Hehe.

I hope that was more clear of what I'm thinking anyway.