Since my goal is always to go with tools found inside the house, I decided not to use the chisel, which is outside in the garage. I could have done it with a sharp knife. But I used some rough sandpaper (60 grit) wrapped around a ruler to make a row of grooves around the dowels. And yes we keep sandpaper in the kitchen because we always seem to need it for one thing or another.
It was fairly easy to do, I did grooves on 4 dowels in under an hour while watching television. I marked a line one inch from the end, then sanded groove in sort of a V shape, but with more angle to the vee side near the end of the dowel. As you can see, our trusty wooden bar stool was the work bench for this job.
UPDATE: 9/25/09 I was reminded that a rasp or wood file would also do this little task.
Have a good day!