The builder is correct. The head of the nails will tear up relatively expensive sandpaper in seconds and the drum or disk with it, OR the samdpaper will remove the heads of the nails so they look like todays nails but don't hold as well, OR both. If the floor was painted, lead paint was probably used and that's a lot of lead dust to have in the house or for you to breathe. I guess that you could strip any finish, clear film finish or paint, with a chemical stripper and then use a small sander to improve the look a little but I would need a lot more info to know if this really could be done. IF it could, I would think in terms of sweat equity or a big checkbook.