I use #0000 steel wool and WD-40 to remove surface rust, including painted surfaces.

As to the bottom bracket. I can't tell you how many I've had that felt silky smooth with the crank arms attached but when I remove the arms and turned the spindle without them..... They felt like the bearings were square and packed with gravel! Pulled them apart and the grease was the conistency of tar. Repack the bottom bracket, head set and hubs.