I'd suggest a bead-blast job to remove the rust, then a good pressure wash to remove any leftover beadblast media. The cover can be oiled with something more durable than WD-40 to prevent re-rusting, regular motor oil or rear end lube works well. If you choose to paint the inside, use a hot-oil-resistant paint such as Glyptal transformer paint. It's used on the inside of oil-filled electric system transformers. We've used it on race engine cylinder heads, valve valleys, and crankcases with very good success. There is no tendency to peel like Rust-Oleum or regular engine paint does when exposed to hot motor oil. W.W. Grainger used to sell transformer paint in rattle cans some time ago, but I haven't bought any recently. Start with a perfectly clean, oil-free surface to help the paint stick.
Jerry

"It is better to be silent and be thought a fool than to speak and eliminate all doubt!" - Abraham Lincoln
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