If it's just the surface plaster finish that's affected, then remove all the loose stuff and give the area a couple of coats of diluted PVA to remove background suction. Ordinary gypsum "skim" is all you want. No additives needed.
If the backing coat is also coming away, then you'll need to repair the backing first, then put on the finish coat. A much easier way for a DIYer is to buy a small bag of "one-coat" plaster.
http://www.wickes.co.uk/Wickes-One-Coat-Plaster-5kg/p/163571
Remember to check the quantity you'll need, by measuring the total area.
As for decorating, it's a matter of personal preference. A lot of people just emulsion behind the rad, and paper around it. No problem to paper all over though ... once the plaster has dried out properly.
I've not had any experience with the reflectors, but I can't see that it'll do any harm.
You know how to take the rad off, Giz?