Looks to me like a Dremel tool with a grinding stone would be the right tool for the job.

Question, for my curiosity - is this frame a TIG welded steel frame? I cannot figure out how that opening happened. (Did a small animal get trapped in the tube when the frame was made. Armed with a cutting torch and got about halfway to a successful escape before it expired?)

That is one of the odder things I have seen on bikes. But I don't see how a quick dressing of the metal sticking into the seat tube is going to hurt anything. Just stop before you take any more off. Keep checking with a seatpost, As soon as the post goes by cleanly, stop.

Ben