If you look at the pictures of the lights before I fixed them, you'll see the plaque-like coating at the bottom of both of the lights. Before you polish, you need to make sure you completely remove that entire surface with your sandpaper as it will never be clear again. Once you "relevel" the top layer of the plastic lens of the headlight and get a uniform surface with no pits, scratches or defects, then that's when you start stepping down from your most aggressive paper or product and start refining the surface and prepping it for use with either your DA or rotary, whichever you're more comfortable with until you get an exceptionally clear surface.
If you look closely at my after pics, you'll see some scratches where the light reflects off of the lens that I just couldn't get out, so I tried to minimize them as best I could and then protected the surface of the light to prevent a reoccurance of the yellowing and such.
I will also, sometimes, polish out he lights a bit to see where I stand in the correction process (sanding process) to make sure I'm going to end up with a very clear surface. If it's not good enough for me, then I"ll sand it down some more and then repolish until I'm satisfied.