The machine should be designed in its "home" state. Design the machine in the file as it is when you've freshly powered on the real machine.
There are some important rules that the solid designer should follow in terms of turret positions and orientations with respect to the chuck position and orientation. That is, lathe tools, or more specifically, lathe tool inserts cut the stock when they are parallel to the setup's XZ plane. As such, you must design your lathe machine so that a lathe tool in slot 1 can be moved into the XZ plane. Featurecam will not initially rotate the turret. The figure below shows a turret that is modeled incorrectly. The turret solid cannot be moved such that the tool in slot #1 can cut in the XZ plane of the chuck without rotating the turret. In this situation, you should rotate the turret solid so that the tool is in the XZ plane of the chuck.
FeatureCAM assumes that the tools will point toward the center of the chuck. If that is not the case with the machine you are modeling, FeatureCAM will need the flexibility to move the turret so that the tool points toward the center of the chuck. In the example shown below, the tools are parallel to the XZ plane, but they do not line up with the chuck's center. In this case you should tell Featurecam that part of your machine "moves-in-Y", when in reality, your machine cannot move in the Y-axis. Featurecam needs to move the turrets in Y so that the tools can be "translated" into the chuck's XZ plane. Note that the machine simulation does not affect the NC code. No actual Y moves will be included in the NC code.
It is not necessary or desirable to include the tool holders in the .md file. However, the tool blocks are part of the lathe machine.