Definitely wetsand... It helps if you have a DA polisher as well...
I got headlights off ebay for our Merc, and the lenses were in aweful shape... yellow, pitted...etc.
I started wet sanding with 800 gritt, then moved to 1000, 1500, then finally finished at 2000 grit.
I have had this for a couple years now:
Diamondite® Clear Plastic System Kit cleans, polishes, restores headlight lenses. Diamondite plastic polish scratch remover for headlights.
Completely brings the headlight back after wetsanding.
I've attached pictures below.
1st picture wasn't the worst of the two lenses but you can see the hazing/marring on the upper lens part.
2nd picture is after it's wetsanded... can't see through it at all.
3rd picture is after polishing it with my porter cable and the kit linked above...