The amount of rust through out the entire engine is troubling. Looks like it was left out in the rain and water got in through a port. That would be your best scenario as the rust would be just mostly superficial and not caused by an internal leak. Also I can see pitting on the deck surface of the block. Because you don't know the cause of the water inside I would have the block and head checked for cracks after cleaning in a hot tank. If cracks are not found, checking and machining the deck surface and head surface if needed may be prudent. Some scoring on the piston is not a problem if the piston still mics out to spec. Just make sure the burrs are removed and the ring grooves are not affected. Many times piston scoring is caused by a very rich fuel dump or spill into the manifold which washes out oil from the rings, or overheating severely, hence checking the cooling system for cracks.
That is engine is too dirty to try and clean yourself with out risk of ruining your hard work from rebuilding.
