Answering the questions.

1) How highly you polish the blade is to you yourself. As a general rule the more pitting you have to remove the more metal you have to remove so there will be times you will stop and not remove all the pitting and other times you will go for the mirror finish. It depends on the quality of the blade.

2) Any time you take sandpaper to a blade to clean it you will destroy the edge. For honing (i.e. sharpening if you're a knife user) I would recommend a 1K ceramic Shapton for bevel setting and then the 4K/8K for sharpening - although you could go to a BBW/Coticule natural combination stone if you want to spend a big chunk of extra money for a better result.

3) A good metal polish does the trick. Mother's Mag polish works well, and I am going to try out "pre-lim" surface cleaner which a coin collector has put me onto. MAAS and Flitz are recommended.