I want to make the following block using a Layer Cake. Based on the dimension of the blocks (one 4.5 inch block plus two 5.25 inch blocks), you run just a 1/2 inch short using a 10 inch square. Can I size everything down by 1/4 inch and have it still work out??

I would say yes. I frequently use charm packs and layer cakes and reduce the size of the block in keeping with the size of the fabric that I've got. Just be consistent!

Yes, I think so - I do this when I have layer cakes and charm packs. It will be so much fun...Woo hoo..

Take an extra piece of 10inch fabric and try it with your new measurements and see if it works.

Since it's essentially a 9 patch, you're probably better off shaving the 1/4" off each section. Otherwise, you have to deal with x/16's measurements.

If you make it a 11.25" FINISHED block, then the center and corner squares need to be cut 4.25" UNFINISHED.

The starting squares to make the QST blocks are cut 5".

I'm usually from the cut-oversize-and-trim-down school but that's the exact size needed, so you need to be spot on in the cutting and sewing.
You could take a slightly smaller seam allowance when sewing on either side of the diagonal line.
That would give you a little wiggle room.

Make the QST blocks and trim down to 4.25" UNFINISHED.

When assembled, you should have a 11.75" UNFINISHED block.

Make your hour glass blocks first. then cut the other squares the same size and it will work.