I was going to post this on Bicycle Mechanics, but I thought it was something that the C&V'ers might be more familiar with..

I'm overhauling my girlfriend's new (to her) Trek 520. It's a neat little bike - V brakes, braze-ons for a rack. But it's got this bubbly rust, particularly around the lugs and along the cable guides on the top tube. I kinda brushed it off when we bought it because we were excited at the find, but now that I'm looking at it, I fear it may be a bigger problem/PITA than I had thought it would be.

What should I do with it? If it's bubbling but hasn't broken through the paint, should we still gently sand it off and treat? I figured that I would do nail polish or car touch-up paint.

Thanks in advance!