Depends on the car whether or not it's cheaper to replace or repair.
I do a lot of HID lights and those things are not cheap. New corolla HID lights are upwards of $900 each, so you can imagine what merc, lexus, bmw, etc are charging for them. And they all have UV coatings that fail, or scratch or whatever. That said you can pick up genuine VE headlights for ~$200, so if they're going to take a lot of work to bring back up, there won't be too much difference in cost between repair and replace - may just as well replace.
Sanding back isn't so much the problem - the polycarbonate is fairly thick and sanding with 800 or even 600 isn't going to worry it too much so long as you sand responsibly and only remove what you need to remove - it's what you do after that which can have the issues. Sanding doesn't put any heat in the polycarbonate, so is quite safe, but you can cook and craze lenses really quickly if you polish out from there and don't really know what you're doing.
2k clear is a good option - I've used it with good results in the past and it will last VERY well. I've moved to OE style UV coatings now, for a number of reasons, though these are not a DIY option as they require UVA curing lamps to work.
You CAN sand/polish or just polish if they're not too bad, but without ongoing maintenance, they will haze back up in time. No wax, sealant or coating will protect from UV, or even bond as well to the surface as well as 2k clear or a dedicated UV coating but you can wax, seal or coat over those pro options, or the factory originals, to dramatically extend their durability.
A really good practice to get into is to wax your headlights (and tail lights) every time you wax your car. The UV coating on poly lenses is really designed to just protect against UV, not every day wear and tear. You still need to look after them, the same way you would look after the rest of the car.