Sanding between clear coats is mainly to remove dust and small balls of lacquer, so do it very lightly with 320 grit. I'd build up the lacquer depth considerably before sanding down flat. If you do sand through to the fabric then there's no coming back (unless it's under the scratchplate). And yes, you will want an even matt finish before you start polishing. No orange peel if you can help it, so hold the body up to a light at a shallow angle (so the light looks just like the sun coming up over the body) which will highlight any shiny pits still remaining that need further sanding to remove. If you still have shiny pits, then you still have a depth of lacquer over the fabric, so it's OK to keep sanding; but do it carefully. Do a little at time and keep checking.