Yes, sandpaper will scratch the rims up. Are yours stock? If so, they are probably painted with a clear coat on top. You can "rub" them out with some rubbing compound used on auto body paint.
If it's deep, there's not much you can do but strip/prep/paint/clear the wheels to make them like new. One other option is to get them powdercoated. I powdercoated my Chrysler wheels last year with a finish called "Silvervein" by Cardinal Industrial Finishes. Cost me just a bit under $300 to have the Silvervein put on the front of the wheels, gloss black on the back with a 2 mil clearcoat over top:
On the brake drums you can pull them off, strip/prep/paint with a high temp caliper or engine paint to make them whatever color you want.