I wouldn't want to comment much on finishes. I've been delaying finish on mine because I am still undecided what to use. I won't bore you with my dilemmas, but basically, yes, you can use Color Tone and all kinds of brands you can buy. You can use oil or water based. You can use primer & automotive paint. You can prepare the wood a number of ways...

I know you are trying to save some $$ but Melvyn Hiscock's book How to Build an Electric Guitar http://www.amazon.com/Make-Your-Own-Electric-Guitar/dp/0953104907/ref=sr_1_1?ie=UTF8&s=books&qid=1260235563&sr=1-1

and/or

Dan Erlewyn's Guitar Players Repair Guide
http://www.stewmac.com/shop/Books,_plans/Building_and_repair:_Guitar,_electric/Guitar_Player_Repair_Guide.html

would both be worthwhile purchases. Finish is an area where I don't even have opinions yet. :)