cheers BM. When i ''lightly sand'' using the 1200 grit.... should i be ''rubbing it down'' or just a once over light job? 
The lacquer should be hard as nails! It will easily take quite a bit of abuse once dry. The residue from sanding lacquer is white, it will turn your lubricant (the water) a milky colour. Thats perfectly normal.... just sand the freshly sprayed area evenly. If you get a residue which is your paint colour, you have gone too far!

It's easier to stop sanding before you think it's perfect and then using the cutting paste, stand back and think "I'll give that another rub down" than to go too far and think "rollox, I'll get the spray gun back out"

Interestingly, lacquer needs to be applied a lot heavier than most people think..... certainly much heavier than the base-coat. 3-4 decent coats of lacquer is perfect IMO. Some people prefer 6-8coats of lightly applied lacquer, but I dont think that gives enough depth. Obviously, you are more prone to getting runs in the lacquer if it is applied heavily.