Neat bug holes. If I were you I'd get it back down to bare wood and then squirt some wood glue into the holes. Then take a putty knife or credit card and scrape/ smoosh the glue down into all the holes until it's pretty well flush. Then take some old sandpaper ( you can use a new disc/sheet but it will be gummed up after this) and start sanding with the grain. If you're using a power sander do not use dust collection. After a little sanding the holes will disappear as the sawdust and wood glue create a stainable, color matched patch. Let it sit for at least an hour but preferably overnight before finishing.

As to finishing, I pretty well use Danish oil on just about everything when I'm looking for a matte finish. 1-2 coats will leave it still feeling like wood. 3+ coats you start getting the plasticky feel as the layers build up and form a shell.

Good luck and have fun!