I had the same question about the "rust" when Davis Performance did a pre purchase inspections for a D2 for me, turned out to be some sort of putty covered in red dust and not rust.
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Well, given the time of the week, I'd say the head is actually off the Disco. Turns out it's a blown head gasket.
Such is life.. you gamble and some times you win.. not in this case. I've factored in a bit of cash spent post purchase, so I'll just live with the hit.
If nothing else, it will come out of the shop and I have a baseline for how things stand.
Hoping I have it back for the weekend for a quick drive out to the Brindies.