My parents, who found it, say it could use another coat of paint on the walls to mask the old colors and hopefully the mild smoke.

You want something that everyone recognizes as normal.Back to the exterior: you want it to be in obviously good exterior condition and have a fresh coat of paint in a normal color scheme.

A coat of kilz original on the subfloor would probably do the trick and open the windows

You'll lose the deal.The deal is, a couple coats of new paint over lead based paint is how you fix it.  

Should I refinish it the "normal" way with sanding, stain and 3 coats of finish?

I need your advice, and please don't sugar coat things.

Personally I am doing away with carpet in mine in the future and going with the tile and thicker laminate planks just not in areas prone to get wet.  

unfinished, sanded and two coats of poly.  

I was thinking of actually using the garage floor coating they sell at Home Depot.

I rubbed some on a hidden tile and it seemed to tint it very well, I think if I went with an ebony color it might do just the trick, then I could go over it with rejuvenate or some other basic floor coating every few months to help seal it in.Thoughts or suggestions?