Your question is the same as me saying, "I just paid $40,000 for a car, does this sound excessive?" Without knowing age, make, model and one's income level, its too hard to say.

What size is the deck?
What product is on the deck?
Is it peeling?
Why does it need to be sanded?
What is the contractor putting on there?
Is he going to strip the deck with detergents and pH balance it?
How many levels does it have?
How high is it off the ground?
What type of landscaping surrounds the deck? What's underneath it?
Does it have benches, trellises or other decorative features?

As stated, the age of deck is about 2 1/2 yrs. old. It is cypress. Deck preson said that all decks like ours require
sanding, etc., after the first couple of years. He said, sun & elements take a big toll. He did say that it should not require sanding (after this) for at least 5 or 6 years & then, only a light sanding.
What size is the deck? (About 1,000 sq ft)
What product is on the deck? (Cypress that was stained & sealed)
Is it peeling? (It is very dry and splintering)
Why does it need to be sanded? (see above)
What is the contractor putting on there? (He plans to sand it, and then re-seal (didn't say with what products))
Is he going to strip the deck with detergents and pH balance it? (Not sure)
How many levels does it have? (It has one level)
How high is it off the ground? (about 12 ft)
What type of landscaping surrounds the deck? What's underneath it? (natural landscape with pine trees. Directly underneath is a lower, concrete patio.
Does it have benches, trellises or other decorative features (NO)

Have I mentioned I love cypress? Beautiful deck, joiful.

There aren't even spindles to worry about. I guess if a guy is going to sand the whole deck, I might be able to justify that type of expense. I don't undertsand the logic of sanding now and then it won't need to be sanded again for 5 years? I also don't see a ton of cypress around here so maybe there is something mystical about it that defies the properties of all other woods.

I am not a fan of sanding at all. Is the deck rough to walk on? Are you on it frequently with bare feet? I would bid $2800, strip it with detergent and very low pressure, pH balance it, seal it with a high quality penetrating oil and set you up for a maintenance cleaning and light coating in 2008.

Find out what product he wants to use. Make sure its oil based.

Thanks for your comments pressurepros. Yes, the deck has become hard to walk on because of cracking & splinters in the wood. The deck person said that the wood should be well aclimated now and proposed the sanding to smooth out the splinters, etc. He felt that the wood will not need much sanding in the future but will need a yearly cleaning & sealing.
I don't know all the details but do know he was highly recommended and has been doing this for over 30 years.

Well then, it sounds like the way to go. I would get on a maintenance schedule so that once it is smoothed down, you keep the wood oiled and conditioned and prevent this from happening again.

For what it is worth, a good parafinnic oil will soften splinters and the surface fibers on a deck.