Would WD40 be good as a contact cleaner? Stupid question I know...
Yes! That's fine for joystick microswitches. What make is it?
Personally I would do the 1Mb chipram mod, thats easy. Then add a 4 or 8 Mb board from kipper2k. If you are going to get a HDD (which can be hard to find for a 500) then definitely get the 8Mb board, if you are just going to stick with floppies then 4Mb is all you need, and infact is probably an overkill - that said price difference is hardly anything so I would stick 8Mb in.
If you do get a HDD, then and only then, consider getting 3.1 ROM and a ROM switcher, and if you want to be able to press a key to quit in whdload (software that runs games from HDD) you might want that 68010, I wouldnt bother tbh as you wont be running at stock speed.
You can make that 1Mb chip RAM toggleable with a switch btw, if you dont permenantly want 1Mb chip ram.
ECS denise isnt really needed unless you want to play ECS games, which I think need kickstart 2+ (eg 3.1), so not much point in doing that chip unless you get HDD and 3.1 kickstart etc.
External floppy is a good idea, try to get a cumana - those thing run forever. If you need a new joystick, look for a good cruiser or zipstick. I prefer the cruiser myself as its easier to hold but zipstick tend to be more robust.
I would add more RAM to those empty sockets youve got then you would have 1.5Mb chip ram, but it would require soldering many pins. If you explore that idea make sure to get sockets and solder the sockets in place and not chips - stick the chips in the sockets. Getting those RAM chips could be tricky - try EBAY or aminet. I saw a cut off board section just last week that had those RAM chips on it, but they needed desoldering first.
I would be interested to know the model of the RAM on your board, the older revs like mine have 41256, or 51258, 81256 etc. And there are normally 16 of them, I think yours has 8 and 8 empty spaces?