[nugundam93]

yes you do have to remove them all to ensure that you get all the putty that might not cure properly. it you don't, it will become a problem later as you'll have the hard outside putty and a softer inner putty which could crack (or cause the outside to sink) and cause a lot of problems.

as for sanding it smooth...wetsand it first with the 320 until all you see are recessed areas (your pic shows a lot of raised areas). fill the recessed areas with putty, let dry, then sand again. eventually you'll have to use finer grits to smoothen the putty surface. i do prefer wetsanding to control the dust that would've flown around if i didn't add water, and to keep the putty from fouling up early the sandpaper.