Any scratch, in either paint or powder coat will allow rust to form. Powder coating is just much less susceptible to scratching. The only downsides that I've heard of are that it can partially fill engraving, etc in the frame as it's not as thin as paint. It can also get thin on shape edges if not applied correctly or get in the threads if not applied correctly. The available colors aren't as varied as paint and some special paint effects aren't available with powder coating. Normal decals can't be put under powder coat (due to heat used for curing) but you can either get special decals or use a normal clear coat over the decals after the powder coat is done.

The bead blasting will remove any existing rust.