I used to do this for a propane company. No problems sanding down a tank with power tools, just be careful near the fittings and such, a wire brush or scotchbrite pad works well there. Definitely check for leaks before you start, but propane requires a fairly specific air/fuel ratio to burn. A day with a little breeze is ideal. Of course, in a perfect world you'd do this with an empty tank that's been purged, and most of the tanks I worked with WERE empty, but not purged. Not all though. I generally used a stiff wire wheel or cup on a 4.5" grinder to strip off rust and any paint that was starting to peel. Then I'd take a full size sheet of scotchbrite and rub the whole tank down to prep the surface. Hose it down and wipe it off with clean rags to get the grit and dirt off then paint once it's dry.
I highly suggest getting the right kind of paint, check with FW Webb or someone similar. Worst case, Rustoleum does work, we often used it on the smaller sections of pump stations and tank lids. Go for multiple coats, not one thick one. A light brown or green is about as good as you can get for hiding it. As Bufford says, you don't want dark colors and most states have laws regarding that. Unfortunately that's also why gloss paints are often used and suggested.
If you're friendly with your propane supplier you can ask them about it, they may be able to sell you a can of paint, but you only need a small can for a 500 so they might not be much help. If they're like us they buy it in gallons and go through it by the case. The cleanup will take longer than painting, a roller for 90% of it and a cheap brush for around the fittings and you can do a coat in about ten minutes, most of which is the underside just because it's akward.
