NC, made a call to one of the folks who
uses cotter keys. His answer is that (1) you're right, if you don't get the thing clamped down tight in the vise jaws (he uses very large jaws for this) you're in trouble from the get go. He also uses very heavy thread (kevlar?) so he can cinch down and keep the key 'closed.'
To attach the hook he runs the leader through the opening of the cotter key (apparently he will bend up the "eye" on lighter ones), leader through this, down the side of the fly, through a short section of soft plastic tubing (same stuff you'd use for fish tanks), attach hook and slide tube/leader/hook on to the straight end of the cotter key.
Jimmie noted the hair pin idea of his above. I've seen what he's looking at doing and it appears to be a very cool idea. Looking forward to seeing some of these 'converted' to flys.