I lean a little more toward using coarser paper to start. I have built a lot of Ziroli and Royal airplanes which require a fair amount shapping. Any time you are doing much shapping (even with balsa) the more coarse the better to start. The reason is something like 120 will leave low spots durring shapping. It is no where near coarse enough to cut down planking without "wallering it out" (I understand that phrase, does everone else?). If you are going to monocoat it or fiberglass it I see no reason for 400. 200 is quite adequate. The grooves in balsa are coarser than 200 grit. I know some will disagree but you will have to experiment and find out what works for you. Try different grits so you can make up your own mind.

Also, always use a block or something to control the surface. Never sand with paper alone!