Ok, everything worked fine this time. The difference is I dug out the putty from the center end of the rolls. Basically I was getting the putty from the interior of the rolls as suggested. The putty sticks are hardened on the exterior and much softer in the center. The interior putty hardened nicely.
A couple things I have noticed working with the milliput. The amount of putty needed to produce minor repairs or modifications is tiny for 10mm. Often in getting the putty rolled into tiny balls and smoothed out, the putty tended to crumble and develop holes. I started just plastering on what I could and then filling the holes with more putty and smoothing. I also noticed I was having problems getting the putty to stick to the models. It seems to prefer sticking more to my knife or my skin than the models.
Overall though, it seems to be getting the job done. I managed to repair a couple broken lances on some mounted 10mm knights and made some minor modes to other mounted knights. This could open up all sorts of interesting possibilities......

Thanks all!