The easiest solution to using the pegwinder would be to shove paper inside the slot, or saw some off it with a junior hacksaw. The damage to the finish is probably best filled in with model aeroplane dope. A good book on guitar repair was written by Hideo Kamimoto - try asking at your local library. This will tell you what to do with the wire wool. Do not try to substitute one of those soap-filled pads for scouring pans - these can cause havoc when you try to apply finish after using them.