Twin hydro, I think what you are seeing in your engine is not rust but congealed castor oil. Old castor is often confused for rust. When I buy used engines I always figure a new set of bearings in the price of the engine. My latest buy, a YS 160DZ also needs a camshaft from a botched disassembly. It felt like it needed new bearings and the exhaust port was very clean. At the time a steal at $150. I'll still come out OK in the end I think.
Buying used can sometimes be a crap shoot. Over all I know I am money ahead. In your case, throw in a set of bearings along with a good cleaning and I'll bet you have a good engine there.
Ken