I don't have SnBN, so I'm not familiar with the instructions your referring to, but I know the technique. Basically, you'll find your row and stitch gauge, then multiply the row and stitch counts in the pattern to suit your gauge. Am I right?
Because you're using a finer yarn, it will by its very nature probably have a bit more drape, because it will produce a thinner fabric.
Your gauge swatch should have all of the characteristics that you want the fabric of the finished garment to have. So knit it on needles that work well for that yarn and do the calculations based on that.
As for the smaller needles, just use needles a couple of sizes down from the ones you decide you want to use for te rest of the project.. That's how it usually goes.
See if you find this page more helpful than the book:http://220.127.116.11/cara_free/convert.htm