Unfortunately, I can't ofer an expert opinion on the 84 ATC125M, but usually when I encounter the problem you are describing, I replace the needle and seat as a unit. Generally, any imperfections in the needle or seat will permit fuel leakage. Even cleaning with steel wool as you described can create these imperfections. Again, I am not positive about the 125M, but most needle seats I have encountered have been retained by a small, forked bracket and screw.
You might also want to make sure your float is set to manufacturer's specs, and the little tabs are not bent down, directing an excess of fuel into the carburetor.
-Paul
86 Honda ATC350X
86 Honda TRX70
02 Honda TRX400EX
03 Kawasaki KFX80
82 Honda CB900F