You know, I wouldn't bother with a set neck, especially if it's been made for a bolt-on. I know people who have done the conversion and noticed no difference in sound. The good thing about a set neck is that, when it's done well, you have good access to the higher frets. But if the neck pocket area is already set up for a bolt-on then you're not gaining anything by gluing a neck in, unless you take the time to re-shape the heel and that kinda thing.
To fill the holes and dings get yourself some Bondo car body filler. It's much better than wood filler, which is softer, more brittle and more likely to cause cracks in your refinish job.
You don't have to take the paint off to refinish it, though it's not a bad idea. Whatever you do, get a decent mask. Get one to keep the sanding dust out and another for keeping the paint fumes out. Really, you don't want to get this stuff in your lungs.
To prepare it for finishing, sand it with 220 or 320 grit sandpaper till it's pretty smooth. Then use a primer such as BIN or Duplicolor Auto Primer. Get it as smooth as you can afterwards by sanding it with 320 grit paper. You might have to repeat these steps a couple of times. Then shoot your colour. I recommend something forgiving like Duplicolor auto paint or the nitrocellulose lacquer available from reranch.com. When your colour has dried hit the guitar with a couple of cans of clear (not all at once, obviously). Then let it cure, which will take about a month. Don't touch it till then. Once it's cured (in a safe place where the fumes can't get into your house and make you sick), sand it, starting with about an 800 grit paper and working up to 2000 grit. Keep your sandpaper wet with either mineral spirits (wear gloves and a mask) or baby oil. Then polish it out with car polish.
This can be an addicting and frustrating hobby. Good luck. :)