How to deal with rust

Aw thats really good about most things being a standard fit because I heard that the BB can be a pain depended on when it was made. Would I be able to fit a headset capable of taking a 1 1/8th fork?

I am either going with white frame with black fork, bars and cranks OR a blue tack blue with back, want it to look clean and simple.

it is technically possible to fit a 1 1/8" fork in a 1" frame by fiddling with a few headsets and bearing sizes. But I really wouldnt bother.

There is such an ample amount of 1inch road forks available there is really no need.

For the original posters rust issue:

It would be easiest to take it to a good powder coaters as they will be able to put it in a chemical bath and grit blast anything that is accessible including the inside of the seattube.

After you get is back, you can pour some waxoyl into the frame. Which is very good value rustproofer aimed at people who want to do the undersides of their cars. Its available in clear and black, you could even do the outside as a raw finish clear coat.