The correct method is to use nothing more than a SHARP razor blade. You will need a package of blades as they dull up quickly (I like the utility knife blades as they are thicker and stronger). You just need to get the old material off, not the stains. The stains will not affect sealing.
Sand paper (of any grit) is not recommended, nor are sanding discs or 3M roloc discs. The abrasive grit they leave behind can be very damaging to the engine bearings...and the grit WILL get into the oil drain holes, cylinders, coolant ports, ect.
It takes a sharp eye and a bright light to make sure all the old matterial is off, but don't confuse stains with old gasket matterial.
[This message has been edited by 1fatcat (edited 09-25-2011).]