Littlebit, this is the voice of cold unsentimental realism. Please stop frustrating yourself with this. I've rebuilt and refinished many pianos over the last twenty years and I know what you are looking at. You have a finish that is cracked and checked from years of exposure to the environment. It's not at all uncommon to see a piano of this age where the finish is totally deteriorated on the outside surfaces and pristine on the inside surfaces simply because the outside has been exposed to sunlight and other enviromental ravages and the inside has not. The yellow-white dust you get when you sand it is simply the old lacquer that composes the finish.
Yes, many of these pianos had beautiful mahogany veneers and look glorious when freshly finished, but there is simply no way to restore your piano's finish to former glory other than by stripping it and refinishing it. You can't go from caterpillar to butterfly any other way, and it's expensive. "Restore-a-finish" type products which dissolve and redistribute the old finish are not likely to produce anything more than a mess. A proper refinishing job would cost about $2,000 for an upright piano, not something I would advise doing on this piano. If you insisted on spending $2,000 on this piano I would recommend spending it on rebuilding the action or restringing instead.
As I understand it you had a very limited budget and picked up an old upright piano that you could afford. Nothing wrong with that. The best thing to do is accept this piano for what it is, keep it tuned and do minor maintenance to fix some of the glaring problems like the hammer shank that needs repinning without spending any major money on it, make music on it, and save your money for a better piano in the future.
I'm adding to this post because I noticed your questions/photos regarding the cracked bass bridge. The suggestion for repair using cyano-acrillate glue (super glue) will work, however that's something the tech should do - not a do it yourself job. I think the benign neglect suggestion is very much to the point. It's very likely that this may have occurred many years ago, possibly after the piano was moved from Montreal to Southern California and has not changed in years. If the bass strings hold a stable tuning I would leave well enough alone.
Piano rebuilder, Pasadena, CA www.pianosource.com
[ January 20, 2002: Message edited by: Niles Duncan ]