I was told I overtightened it. It looks like it may have been this way a while, though. It's a track hub. That's not rust in the pic, just grease. It seems to me the bearings won't have a nice round place to sit in... If you can't tell, the top left side is kind of flat like there's no metal there rising up at all.
'''96 Litespeed Catalyst, '05 Litespeed Firenze, '06 Litespeed Tuscany, '12 Surly Pacer, All are 3x8,9 or 10. It is hilly around here!
Clean the hub completely and check the condition of the race. If it's pockmarked, deformed or scored, the hub should be discarded. If the race is clean, round and free of damage the hub is usable. We can't tell anything from your photo at this point.