I'm not sure what's worrying you, it looks fine to me. Bear in mind though that however hard you work on it, any decent painter will still shotblast it because that's the only way of achieving a totally clean and smooth surface for the primer.
The only rust you need to worry about is rust that has come from the inside of the tube and has reached the surface, but I can't see any signs of that.
As far as the rust on the inside of the seat tube is concerned, you always get surface rust down there. Is there anything specific to make you fear that it might be structural?
I always think it best to replace the original decals, but the colour is up to you, whatever suits your taste. As you're in the US, one different option to consider might be the 93 world colourway shown below. A lot of people think the 93 two-tone colourways were the best ever.
The only rust you need to worry about is rust that has come from the inside of the tube and has reached the surface, but I can't see any signs of that.
As far as the rust on the inside of the seat tube is concerned, you always get surface rust down there. Is there anything specific to make you fear that it might be structural?
I always think it best to replace the original decals, but the colour is up to you, whatever suits your taste. As you're in the US, one different option to consider might be the 93 world colourway shown below. A lot of people think the 93 two-tone colourways were the best ever.