Ditto on Flexner's book, but on your specific question, if I am aiming for the grain/figure enhancing effects of a penetrating oil finish, I either wet sand with thinned tung oil or add this after dry sanding and before abrasive paste. As you note, the waxes and (probably) mineral oil in the abrasive paste might not help with the penetrating oil effect you are aiming for. If you do want to start with the abrasive paste, it would help to clean the item with DNA or isopropyl alcohol before using the penetrating oil. (I always clean the residual abrasives and waxes with DNA after abrasive paste, though this is probably a bit obsessive.)
I would not use straight Tried and True Danish Oil in the sequence you describe because, great as it is, it is a relatively slow-curing pure linseed oil finish. It is polymerized linseed oil, so it won't take ages to cure, but as you are doing this before even getting to the abrasive paste and top coat, it could slow you down for a few days while it cures. To speed things up, I would recommend thinning it with mineral spirits. Or, as I do, use Lee Valley Tung Oil Sealer, which is basically thinned tung oil and works well for wet sanding or an initial penetrating oil coat. It brings out the figure in the wood and dries much faster than pure polymerized tung or linseed oil, so after a few hours you can go to abrasive paste or directly to your top coat.