First, a quick note on technique - start with a coarse grade sandpaper on the floor sander and work down to the the finer grade.
The coarse grade removes the old finish and levels out the imperfections, then the fine grade makes it nice and smooth. If you go the other way around, you'll definitely curse every time you see the grooves in the sunlight. Fixing this means stripping off the nice new finish, not fun.
In passing, an obvious-in-hindsight but sometimes-missed point is to go with the grain, i.e. sand along the boards, not across them. In any case your sander will complain bitterly if you don't.
Also, give the boards an incredibly good wash before you start with e.g. Sugar Soap - you want to try and strip off everything gungy to stop the sandpaper clogging too often. Leave for at least 24 hours to dry nicely.
Be sure to hire an "edge sander" too, this will help you get to the edges that a drum sander won't get to. If you can, remove the skirting boards (baseboards) as then you can get right underneath; only do this if you know you're redecorating the walls too and don't mind patching up the woodwork. You'll inevitably end up doing the fiddly bits around the door frame and right in the corners yourself by hand with a scraper or sandpaper, which takes longer than you could possibly imagine.
While doing the sanding, remove everything from the room (obviously) and get heavyweight dust sheets to tape around the door. Wear airtight goggles as this is an insanely dusty process. You'll also need ear defenders as this is an insanely loud process too.
Regarding stain, it's a matter of personal preference. I've done both and prefer the more uniform result that stain gives.
Regarding finish, I've used both oil-based and water-based finishes. Both are OK, but the oil-based one looked richer (can't say why, can't say how) -- and took about three days to dry. Somewhat inconvenient for a hall, and our puppy left nice pawprints.
Follow the instructions on the tin; in general thinning probably isn't worth it, as you'll find the second and subsequent coats will go further anyway. I applied three coats of the oil-based finish, and five of the water-based finish, but this depends on the state of your boards. It's handy to rent good bright work lights so you can see where you've been, especially for the second and subsequent coats.
What is important is that you get flooring-grade varnish, regular varnish won't stand up to the first party, and yacht varnish will cost so much you won't have the first party...
The key to any finishing or refinishing job is proper preparation.
1) Clean the deck, railings etc well, removing as much dirt, grime etc with a power washer on medium setting
2) Wet the area with a mixture of 2/3 gal water, 1/3 gal bleach, and 1/2 cup TSP.
3) Let the mixture set for 5 minutes, then scrub it in with a stiff bristle push broom wetted in the same cleaning solution.
4) BEFORE the cleaning solution dries, rinse it off with a hose or your power washer.
5) Repeat this in any areas that still look bad or stained with BBQ leftovers etc. This should brighten the wood considerably.
6) Repair any loose boards, nails, screws etc.
7) Let the wood dry completely, usually a couple of days under good conditions before staining.
8) I like to apply stain with a roller on a pole or 1 gal pump sprayer, then immediately over brush with a good china bristle brush to even it out. Don't be surprised if it takes two coats to look good again.
9) Don't wait 10 years again to freshen up your deck!!!!! Good Luck
Best Answer
I use a combination on my deck projects.
I always use a stain remover solution to take care of as much of the prep work as possible. A stiff brush will help loosen dirt and grime. Be careful if you rinse with the power washer as you don't want to damage the wood. I use a 40° tip. After that, use a brightener to neutralize the stripping agents in step one. Let the deck dry out for at least a couple of days then hit with a sander. Focus on using the sander to remove any remaining stain first, then use it to smooth out planks and railing last. Blow off the dust and you're ready for stain.
As an aside, new deck restore products are being used more and more these days. These are the thick coatings that are applied to weathered wood. I used DeckCorrect from Cabots a couple of times last year and I liked the results. The type of stain (semi-transparent or solid) that you plan on using will also affect the amount of prep you need to do prior to stain application. Solid stains are more forgiving when it comes prep work needed.
Whatever stain you select, the reps in my area say maintenance is needed every 1 to 2 years nowadays. Long gone are the 3 to 5 years re-coat days.