Scotch Brite, WD40 and go to town on removing what you can. Assemble and run it, you will never know it was there. Its just the rust deep in the cast iron working its way back out. I would bet it was real rusty before machining it. I recently worked on a set of heads that were rusty, after sand blasting and jet washing, they looked like new, for about three days. Then the rust came back just as your block did. I could keep polishing it off, but it always came back. They are on an engine and running great.
I wouldn't bother me a bit to run it, even if the pits don't clean up 100%.
