To insure a complete seal from moisture, it really helps to apply any finish to a smooth surface. One of the roughest places to apply finish is inside of a hole. They are always rough and have relative high and low spots. Any rubbing of wire against these high spots tends to wear the sealer off.
I would also agree with Salty about the quality of finish of BLO, poor choice for durability. Probably the best way to seal the hole would be with a copper or Stainless Steel tube glued inside the lure for the wire to run through. This could be glued in place and sealed nicely at each end or glued all the way through. Hook hangers in the middle would be a problem that could be worked out. To end all of these problems would be to do as Mark Poulson suggest and use PVC, that ends all these problems. But if you are going to build with wood and have a wire that rotates inside of the wood, consider filling the hole completely with d2t, inserting a piece of scrap wire to swirl around to make sure the epoxy is completely sealing the entire length of hole. Remove as much of the epoxy with the scrap wire and continue with the build process. If it is a lure that the wire doesn't rotate, just fill the hole with d2t and leave it full with the wire inside. Wood only shrinks/swells by taking on/loosing moisture. If you want to check quality of seal, just seal inside and outside before you do anything else to the lure, sink it under water overnight. Check it the next morning for cracks, sure way to see the quality of your seal.
I love building lures out of wood, even if pvc probably is the better choice. It is hard to beat epoxies for sealing wood. Don't let the problems limit you from using wood, just test and see how good your seals really are. If you solve this problem, the rest of the build is easy. Good Luck, Musky Glenn