I use a Permatex product called "Rust Treatment"
(RT-16A). You just remove the loose material, then paint this stuff on. It turns black as it dries and seems to stop the oxidation process. Leaves a nice hard, paintable surface.
http://www.permatex.com/products/industrial_individual_products2.asp?selectid=30&category=maintenance&oe_category=engine&product=Permatex,+Rust+Treatment

You never have enough, til you have too many!