This must be the ultimate "good news,
bad news" message. I'm really sorry to hear about the problem, but
at least the mystery is solved.
Rust has been a problem for a few people,
and Finn recently posted a message about the rust he found in his junk yard
engine. I also had similar rust in my "new" engine that came
from the RX-7 Specialties generator engine batch. The problem is
that someone ran the engine, then drained the coolant by disconnecting the
hoses. Obviously, this doesn't drain the lower half of the engine.
The answer is to use the block drain at the bottom of the center housing on the
plug side. If anyone has an engine sitting around in storage, I'd
recommend opening that drain to see what comes out.