I'd rather use 400 wet/dry sandpaper in hot water with a couple drops of soap myself, it does a better job of scuffing the surface IMO and does it faster...I've not ever been that impressed by the 'good ole rusty and trusty' scotch pads.
For the chips, I'd sand them 'til the edges are feathered and you can't feel the edges with your fingers.
Who's doing the priming/painting and surface prep? If it's you, there's a lot more to do than just that.