"Also there is some rust in the barrel and around the hammer. I would like to re-blue it but will the rust be a problem?"

A 1/48 twist is a compromise, but with the right powder charge a 1/48" will shoot PRB and bore-size conicals as well. However, IF there is rust in the bore, forget it! Pitting makes it very difficult to get decent accuracy with soft lead projectiles or patched balls!

Find yourself a rifle that has a smooth, shiny bore.