Unless the gasket manufacturer states otherwise, don't put anything on the headgaskets. They need to be installed dry.
As for prepping the block, you should run a tap or thread chaser down every headbolt hole then blow the matterial out with compressed air and try to catch it with a rag. This will ensure clean threads and give you a much more accurate torque reading.
Sanding the block? I don't know. You need to be very carefull of the grit that will fall off the sandpaper and into the cooling jackets, lifter valley and cylinder bores. This grit is very abrasive and can cause premature engine damage. Unless the block is out of the car and bare so it can be cooked afterwards, I wouldn't recommend sanding it.
A corse wire brush like the one on the left and a drill work pretty good. Just be sure to check the deck and head flatness with a feeler guage and straight edge when your done cleaning them.