The refinish or no refinish debate has been discussed here ad nauseam.
The bottom line is that it is your gun and therefore your choice. If you are looking for help to make your decision I would offer the following.
If you are doing it for yourself and cost is not an issue then there is no decision to make.
If you are doing it with hopes that the guns value will increase with a new paint job, then there are 2 answers.
Purist collectors won't touch the gun in most instances.
Shooters and non purist collectors won't mind or will maybe only take a small deduction for the refinish.
So basically that is it.
As for steel wool, NEVER use it on a gun. It is too harsh and steel rusts. When steel wool is used it tends to leave small particles behind and little particles of rusting steel are not what you want on your blue finish. I don't even like brass or copper wool unless the rust is very thick.
Try a rag with oil and rub the rust flecks gently. A finger nail works well with oil also. Remember that bluing finish on a gun is a form of rusting and is only skin deep. This is why a leather holster is able to remove the bluing from the tip of the barrel.
Over rubbing of any manner will remove the bluing. So good luck and make sure to post before and after photos. We all love gun porn.