Are you using a rust inhibator ie rust mort or ospho on the rust spots before you mud them? And $500 bucks is not a bad price for a daily driver and with a little work it will be a nice car.
my father told me to use this clear liquid stuff that drys on contact that stops rust from coming back, then i primered over it, i am waiting on a nice day (above 50 degees) to start bondo-ing.
im planing on getting the rear disk brakes, i prolly wont do the five lug conversion though because i am buying the rotas. i am gonna redo the suspension and then get a b 16. this thing wil definetly be redy for the engine by the begining of college.(2.5 yrs)