I hit someone right in the middle of the quarter panel. There seems to be a high spot that i tried getting rid of. Looks like the panel might have buckled a little bit right about door handle height.

1. Should I hammer out the metal with a shrinking hammer and then sand down the entire panel to blend it and then repaint the entire 1/4?

2. Or drastic measures to replace the 1/4 with a Goodmark panel?

I painted the car myself about 10 years ago and have done little body work since.

Replace a panel only if absolutely necessary.
I think you should try to hammer out the pannel. What do you have to loose! If it doesn't work, try heat.

Does heating up the metal make it easier to work with? Should I use a propane torch or oxi torch?

Generally you do not want to heat the metal unless you need to shrink the area due to streching, or if the area is very crunched.