Go for it.
Sand it back to bare wood (it'll probably have a really thick layer of polyurethane sanding sealer under the clear coat). You may want to use a heat gun (take it easy though, it's easy to scorch the body).
Once you've got it back to bare wood, fill any little dings & dents. You may also need to use a grain filler depending on the type of wood. Sand that all back to 400 grit, then give it a few coats of sanding sealer. Sand that to 400g, then spray a few coats of primer. Sand the primer to 400 (I go to 800 but that may be a bit pointless) and recoat if you sand through. Then the colour coat - if you get any runs, stop, let it dry and sand them out then spray another light coat over the top. Don't worry if you get a bit of 'orange peel' effect in the colour at this stage. Once that's done you can spray the clear coat - there's loads of options for that (polyurethane, acrylic, nitro-cellulose). Personally I've had the best results with nitro cellulose, each coat melts into the previous one which doesn't happen with poly/acrylic. One the downside you'd need to wait about 30 days for it to cure before the next step. Once it's cured you can wet sand with 1000/1200/1500g depending on how much orange peel/bumpiness you have - avoid the edges because it's very easy to sand through. Once it's sanded up to 1500/2000 you can polish with a good car polish (note: polish, not wax).
If you don't want to go all the way back to the wood you can get away with just scuff sanding the existing finish to 400g and goign straight for the primer.
This Squier was done with Plastikote aerosol and Behlen nitro cellulose:
I'd definitely recommend having a read through the threads on the reranch.com forums. The guys there are a really helpful and full of great info/experience. The
Reranch 101 is a good starting point too.
