To do the job right and be able to clean out the grit, the job should be done with the barrel off. I maintain pressure on the front of the bolt to help with the lapping process. It would also be nigh on impossible to replace the compound in where it needs to be with the barrel on.
If you paid for the gun to be rebarreled, you should have asked for the lugs to be lapped, but it isn't mandatory that the smith do this for you. You get what you pay and most of the time, the smith will ask about it. A rebarrel job just doens't mean blueprint an action, unless you ask for it.
Now, did you buy a match barrel? If you didn't 3/4" groups may be the best you are going to get. I would double check the chamber and see if it is done correctly. Lugs might make a small difference, but you should be able to get better groups than what you are getting if the barrel is of good quality and the chamber is doen correctly.