In addition to Carbide 3D there are two other suppliers: http://www.shapeoko.com/wiki/index.php/DWP611#Collets_and_Nuts
I’ve used this reducer with success, albeit I’m not machining metals (yet):
The one C3D sells works very well. I actually use 1/8 tools more often than 1/4 on my XXL and have had no trouble at all.
List of these on the wiki and a cautionary link: http://www.shapeoko.com/wiki/index.php/Spindle_Options#Adapters
I view them as a source of runout and another potential point of failure. Avoid.
The 1/8" collet in the Carbide3D store seems to be out of stock every time I look for it.
Are they expected to be restocked soon?
If you can’t wait:
+1 on the collet from Elaire Corp. That’s what I’ve been using, and so far so good. Not sure what the runout is on it, though.