the distilled water is a good idea.... and keep your etch time abit shorter...
-- you must dry the blade immediately after pulling from the etch..... or rust will instantly be there..... use a drying agent to speed it up... such as methyl alcohol ...wipe it on as soon as you pull from the etch.....
-- that staining you see will be very hard to remove...
i'd start over... the 600 to 1000 grit is a good idea... and don't burnish the steel
lots of fun this repolishing..
Greg