I just purchased a small Omish log cabin that has pine 3/4 * 5 t/g floors. The builders surfaced nailed the floor with zinc coated nails and as expect the nail heads are popping up. There has also been some water damage to some sections (small area).

I would like to attempt to save the flooring - sand and refinish it. Is there any tips of how to handle addressing the nails (not sure about running a drm sander also).

Any tips would help..........

Shouldn't be a problem for a pro finisher. Lots of floors are surface nailed.

If the joist separation is too great, the floor will flex at the joists when stepping on the floor between them. This will ultimately dis-lodge the nails. If this is the case, you could try adding some bridging from below, putting 2 by 8's or 10's between each joist, about 48 inches apart.
This is based on the assumption that this pine is laid directly to the joists.
Otherwise, before starting the sanding process, countersink the nails about 1/4 inch below the surface or less if necessary and fill with wood putty prior to sanding and finishing. Choose a matching colour to the wood if you finish natural, use a putty that will absorb the stain if you are going to stain.