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You open up the pads and adjust the cable.
The first, open up pads, if you open it up too much, it actually got a little softer because the piston is further out.
However, the problem is the cable, you should never adjust the cable for the HY/RD, if you tighten it up, it felt good, but it doesn't allow the piston to fully retrace, thus you experiences gradual loss in power.
Remedy: loosen the cables a bit, until the small screw on the caliper fit in, then squeeze several time, this will return the braking performance.
Remedy II: for soft feeling levers; take out wheel, squeeze levers to push piston out a bit, put wheel back on, squeeze a couple time, it should feel a little sharper.
It's one of those simple brakes that can easily go wrong if adjusted ever so slightly.
Also;
I cleaned some rust off the disc with some sandpaper...
You don't do this, you clean it with isopropyl alcohol, using sandpaper on rotor will actually accelerate the pads wear after you made the surface rougher, I can't comment on how it look now, but it's possible you will need to replace it after you gone done put sandpaper on it.
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edscoble
hms
I feel like a naughty kid in front of the Headteacher right now..
I had to 'open up' the parts that push the pads inwards to get enough clearance for the disc to go in between the new pads...
I cleaned some rust off the disc with some sandpaper...
I fiddled with the adjustment barrel once I found that the brakes weren't biting so much...
Same for the cable tension.