Those rust holes...

If that was mine and it was something I wanted to put back on the road and make it safe and give it more life, I would:

Strip the paint and carry out a visual assessment of the type of rust and the extent of the rust.
Anything surface can be treated and neutralised.
Anything more serious would require patching - that might mean drilling the rust hole until you hit metal and either plug welding it or patching it or having a frame builder replace the stay (I can MIG and TIG weld so there are things that I can DIY that others might not have the tools or the "torch time" to have a crack at).
Repaint, and use modern primers etc that might protect the metal better than what the factory did back in the day.

That hole isn't meant to be there. Poke at it, drill it out, go nuts. You want it gone. If you keep pulling rust out until there's no tube left then good, better you do it now than have it fail in use.
 

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