Agree w/ above...definitely hire a professional and check references. Angieslist.com is great place to find trusted contractors. It's rare to be able to find an amateur who can properly sand the floors. (I think I've met 2 to date and they said they would never do again). Usually, when you try this not only does it come out wrong, but you can seriously damage the floors. I've been brought in way too many times on botched up sanding jobs.
Sanding floors is not that expensive anyway. The amount you save is small vs. the quality of the job and the risk of ruining your floors.
And, no, you can't spot sand! Do the whole floor one way in full.
Now, that being said, if your floors are in relatively good shape, you may be able to do a screen & recoat rather than a full sanding. when you do this, you buff the floors and add a coat of poly. You could even do w/ 2 coats of poly and buff between each. When you get to the point of 3, you might as well do a full sanding and refinish since you would do 3 coats.
Yes, if the floors haven't been done for a while, you could do water based poly on top, but I'd recommend oil as it will last longer and be more consistent with what is on there already.
Debbie Gartner aka The Flooring Girl
http://TheFlooringGirl.com