My wife's car had terribly hazy headlights. A friend suggested using the 3-M Headlight Restoration kit. It came with 500, 1000, and 2000 grit sanding pads, along with a polishing pad, polishing compound and plastic polish.
Simply mount the polishing pad (similar to a sanding mandrel for hook and loop discs) in your drill and sand/polish away the haze.
I read the directions several times and followed them to the letter and the results were excellent. Be sure to mask out the edges of the lense so that compound and polish do not end up in cracks and crevices where it is hard to remove.
The kit was about $15 at Wal-Mart.