The rotary sander should be fine the paint is the worse thing it will glug up your paper ,take it easy and all should be good
These lights are they in close to the wall ,as in directly casting the light down the wall/ walls this generally shows defects not seen in natural light ,but highlighted when said light is used
Don't worry about the paper surface ,if it only nail /screw holes to be rectified sand back to the paper ,go further if needed ,although I cannot see why you would need to
Think of your join in the plaster sheets ,no paper there it's just a surface for the paint to grab , don't be scared to give the paint alight sand in between coats
You have the benefit of seeing your work too at night when the lights are on highlighting the nail holes
The dust problem can be as easy as letting your vacuum run under the piece being sanded ,catching the dust immediately , or most of it
I sometimes use a block of wood with a bit of sand paper ,same grit ,but I have a bucket of water and dip it in and basically wet and dry it ,I use a damp sponge to catch the excess water or maybe add a bit of water , when I'm happy I let it dry ,a quick sand ,then give it a thin coat of whatever you are using to patch with
This is a pretty good fix for really crappy work
All you are doing is prepping a substrate for the paint ,so don't be shy about sanding or even trying the wet and dry method
It's hard to describe a soloution as we cannot see it in the flesh ,I'm doing my neighbours house at the moment ,and commented on a mark in the wall that he noticed at night ,couldn't see it during the day so I told him to put some tape on it at night so we could fix it so don't be shy about marking the nail holes you can see at night with the lights on ,hate to hear you missed one ,I know it would Shit me to tears after painting and seeing a wee mark I missed
Pm me if you like mate ,no probs
Cheers