Randy has it right. It would take a belt sander to get a smooth edge on the rubber.
I can't imagine getting satisfactory results any other way.
I use 120 grit on my belt sander.
I'd think the only problem with home set ups, would be dust created by the leather. I guess a shop vac would help there.
Don't lean on the belt too much, just let the sand paper work only on the rubber until you come into the plane of the leather stacks. It sounds like you'll have to work all the scratches away too.
But when that becomes even and smooth, you can finish it off by hand.
Wet/Dry sand papers, with sucessively finer grits, will give you a smooth edge to the leather, if you're patient.
The results you get will be proportionate to the time you spend on it.
For color, you can dye it first and wipe off the dye stuff as it's drying. The you can follow it up with the Fiebings Leather Finish. It's a liquid wax, and after a couple of coats, you can burnish it with a rag and some elbow grease, and then finish with paste wax to put a shine on the heels edge.
Good luck,