While this is a dirty and somewhat time-consuming job I've used this method on three sets of wheels and had extremely good results with it.
Road grime, salt, brake dust and other crap seems to have a really nasty effect on the wheels of our bikes, especially over time. They get pitted and spotted and scratched to where they no longer look anywhere near as good as they did when the bike was new. If you are like me and spend more time riding than washing I'm sure you know exactly what I'm referring to here. After trying the toothbrush and scotch-brite pad route to limited results I figured I'd go all out and try and find something that worked really well and was cheap at the same time. Here's what I've done:
400 grit wet/dry sandpaper
800 grit wet dry sandpaper
1500 grit wet/dry sandpaper
2000 grit wet/dry sandpaper
Aluminum wheel polish
polishing cloth and generic rags
Depending on how bad the wheels are you may be able to omit some sanding steps. If they are really bad you'll probably have to use 400 grit first but in the majority of cases you can start with 800 grit. In this example the rear wheel is off a 2006 with moderate pitting and spotting.
The first step is to clean the wheel normally and prepare your materials. On this wheel I am using a square of 800 grit wet/dry about the size of two postage stamps. This all needs to be done by hand and the small squares seem to work better. Dunk the square in the water and begin sanding in the direction of the wheel from side to side. It should look like this:
Wipe off the mess and make sure you've removed the pitting,spotting and/or scratches. If not then repeat the first step. You'll end up with a dull finish on the wheel that still shows signs you've been sanding on it.
From there move up to 1500 or 2000 grit paper and repeat the wet sanding process.