Sorry I meant stainless steel
But you are wrong about the sandpaper
Apple uses a Media Blasted Finish
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Not a brushed finish
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Sanding could cause the finish to get shinier, but more than likely it will just look like you sanded the area in one direction = bad idea
I think you're right about the aluminum bodied products (though I think it's actually a tumbled media finish/deburr), but the finish on the iPhone 4 is too directional to be blasted or tumbled. This is the kind of brushed finish the iPhone has. The pic you posted looks like a turned finish, not brushed.
I agree that sanding won't completely restore the finish. I did use that method to remove a pretty good scratch from the side of an iPhone 4. The result was much less noticeable than the scratch, but not quite the same as the original finish. If the result looks too polished, the grit is too fine.