When I was at MAWS last week I saw a presenter that did a good bit of carving. To sharpen his knives and palm gouges he had made a sharpening wheel out of two pieces of MDF glued together and then attached to a face plate. He ran the lathe in reverse at a low speed and put green rubbing compound as an abrasive.
I just tried this and it works very well. I had the face plate - cost for the MDF was under $10. After I sharpened my carving knives, I did out kitchen knives. After sharpening I was able to shave the hair off my arm with each of the knives. Low cost, easy and works well - three qualities I always go for.