Rust on the inside of a frame can be a concern, but so long as the frame's in good structural shape right now, it's treatable. An oxalic acid bath would take care of that internal rust. Pick up a 12 oz. tub of "wood bleach" (oxalic acid) crystals from your local hardware store, mix it with a kiddie pool full of water, and submerge the frame overnight. Remove the frame, rinse very well inside and out, and dry.

After you get the frame back from the powder coater, consider treating the inside of the frame with a rust inhibitor like J.P. Weigle's Frame Saver, Boeshield, or Boiled Linseed Oil. My personal go-to is AMSOil Heavy Duty Metal Protector, which is supposedly the same stuff as J.P. Weigle's, but I can buy it at my local auto parts store.