The rust is the same spot I had mine long ago before the engine bay was painted. Get your hands on some good cleaner (POR marine clean is good stuff, as is simple-green)... more important than the cleaner is to use a rust CONVERTER solution first. POR15 is an excellent product, but a bit pricey... once you have the converter on, sanded and primed and then sanded - apply your paint.
Its all looking pretty good so far though...
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