What you do with it all depends on your style and the style of the rest of your furniture.
If you plan on keeping it traditional looking, then I would not restain the wood. If you want to go for more of a modern look on a classic shape, then I would do a bright solid or mod pattern fabric and paint the wood white. If you want to go for funky, I would go for a mix of bright solids with gilded wood.
Personally, since I lean far far to the side of funky, I am really jonesing after the sort of look this company does right now:http://www.squintlimited.com/
I would imagine that in order to accomplish it, you sew together your "quilt" of fabrics first, before upholstering the sofa with it. But I really don't know - upholstery has always been far too daunting a task for me, which I've always left to the professionals. I do remember, however, that someone here reupholstered a sofa a while back, and it was her very first time doing upholstery, and the results were phenomenal. So you may want to do a board search for that - perhaps she gave some tips.