I'm somewhat new to refurbishing vintage bikes, but here are a few things I've discovered:
Rust spots - I use various wire wheels or polishing pads on a dremel to knock them down to bare, clean metal. Clean with alcohol, then use either a mixture of finger nail polish or automotive touchup paint to fill them in. Once this is done (and fully dry) use a polishing compound on an old rag to smooth them out. I then paint on automotive clearcoat over the spots and repeat the polishing.
Frames look much better once polished. It is amazing how many nicks, scratches, and marks you can remove easily by hand. I mostly use Mothers Mag on everything (even the painted parts) then use a swirl remover polish on the painted parts. Dark frames are much easier to touchup than light colored ones. If you take a rag with rubbing alcohol and wipe it on the frame, what it looks like before the alcohol evaporates will be about what it will look like after a good polishing job.
I am in the process of restoring an old Jamis Diablo into a dirt drop bike, and thought the bike was entirely black until the last polishing step revealed a dark sparkly purple.
Get a few decent tools early (at least a socket set, hex wrenches, and park tool stuff for other things).
If you can't afford an expensive cable/cable housing cutter use a dremel cutting wheel. I've had great results with this method, just make sure you cut somewhat quickly so it doesn't heat up too hot. Use a small drill bit or file to make sure the housing is open right after cutting, and lightly sand around the edges to clean it up.
It's much easier to clean up a frame when completely stripped of components.
Aluminum foil balled up and rubbed on spokes makes them nice and shiny again.
Rubbing alcohol works well for a cleaner and is non-toxic.
Mother's mag polish on a micro fiber cloth makes metal parts look bright and mirror shiny again.
On badly oxidized/stained aluminum (like crank arms) steel wool dipped in Mother's mag will cut through it and make it shiny again.
It's often cheaper to buy a donor bike or more complete component pieces than trying to get individual things on ebay. For example, complete sets of brake levers with hoods can be found cheaper than just the hoods in some cases.
If you don't want to mess with bottom brackets and the necessary tools, many times a $25 cartridge bottom bracket can be had that only requires one tool.
On some components (left pedal for example) you actually turn clockwise to loosen.
Check seatposts and stems to make sure they aren't badly stuck - they can be a nightmare to remove. If the stem is stuck, it is often just the quill - loosen the bolt on the top so it is sticking up half an inch and place a block of wood over it and hit the wood with a hammer to drive it downward. DO NOT PUT THE FRONT WHEEL BETWEEN YOUR KNEES AND TRY TO TWIST WITH FORCE
I've been really surprised at how many completely rusted or trashed parts can be brought back to looking like brand new again.
I'll probably remember more later, and most people here are much more experienced than myself.
This bike was completely trashed and beat up before being brought back to life - like yours, it was not ultra high-end.
