I wet sand with 320 grit SP, then with 800 git SP, then spray 3 coats of clear coat on the headlights....... We do this to almost every car at the car lot I work at.

 

I used some Headlight Restorer from AutoZone (I think Crystal View is the brand) on my wife's 99 civic. It fully restored the headlights and they are clear as new. Before they were discolored, cloudy, and dingy looking. Polishing would help but only for a short time. I think the stuff I bought was guaranteed for the life of the car. It was about $20, recommended to me by a friend, and I couldnt be happier.

One thing to watch for is make sure you dont scuff the paint while you are sanding the headlight.

 

the walmart kit works wonders, the plastic on my bike was all yellow and cracked and about 30 min later it's crystal clear with just a little reading comprehesion and elbow grease. it's a heck of alot cheaper than a new headlight assy