I'm not sure how exactly the speed sensor works but I know the sensor does come with a new backing plate. it might be a good idea to replace it anyway. the sensor is only for the ABS not the trans. as for the grinder, I wouldn't grind anything but only use a wire wheel to clean off any built up rust. you can use a flap disc on the rotor only to smooth and flatten the build up where it ate into the pads and for the outer ridge on the rotor, just once that is done get you a new set of pads.
once you get it all back together and before you press on the pedal, you can test the slides by moving the caliper side to side by hand seeing if that is moving good.