I love my cast iron cookware, but I've also managed to gather a few neglected pieces at garage sales for a song, and this article on How To Restore Rusty Cast Iron Cookware comes in handy! Check it out!
NOTE: Mom's Reader Julie Muzynoski Miklaszewicz had this to add and is worth reading as well.
I would never attempt to season a cast iron pan that still has rust on it. The rust needs to be completely removed prior to seasoning. Having used cast iron for years and years, and taught classes on cast iron and Dutch oven cooking, it is also my opinion that 350 is not a hot enough oven, and one hour is not long enough. The oven should be at least 425 for at least two to three hours. If you have a brand new cast iron pan with no seasoning, this process should be completed at least three times prior to using the pan. In addition, I would NEVER use any animal fat oils or shortening on my cast iron. They will cause your pan to go rancid. You are much better off using a plant based oil, such as a HIGH QUALITY olive oil. You don't want to go cheap here, if you want a decent seasoning on your pan.
To remove a small amount of rust, use a dry SOS pad and the rust will easily come off. For more stubborn rust, soak the item in COKE. Yes, the soda. Just as Coke eats away the acid on a battery, it will eat away at the rust on your cast iron. Once ALL the rust is removed, THEN, you can season it.