I need to cut 1/8" acrylic sheets to make a guitar pickguard....what bits should I use? And what should I use to round the edges?

A dremel is a bad idea. Your not gonna cut/sand with a dremel due to not being able to slow it down enough. A scrol saw is a better choice. You can dribble candle way on the cut line and use that as lube. If you have access to a bench grinder use that to rough it in and them a file to finish it. Finally move to a sponge sanding block for final shaping. Polish it with a fine grit paper or buffing compound and cloth.

I've had good success with Roto-zip spiral bits, up to 1/4" thickness. Haven't tried them on any of my 3/8" or 1/2".