Looks good, needs some work, but I believe that you can make it look good as new.
Yes, get rid of the rust and touch up paint. Hope this helps:
Q: How do I remove rust from my car?
A: Most modern cars are fairly protected against rust. Where rust appears because the paint has been damaged or scratched, you can use fine steel wool to gently remove the rust. An alternative method is to use a chemical rust-converter. Follow the instructions that come with the chemical rust treatment for application and follow-up.
Once you've removed the rust, and properly matched your paint, you're ready to apply some touch-up paint (figure C) to the scratch.
For very small or fine scratches, avoid using the brush applicator that comes with the touch-up paint. It's better to use a toothpick or a specially made fine-applicator (figure D) to apply a small amount of touch-up paint to the crack, without adding any excess. Apply a very thin coat with the applicator, avoiding buildup.
Apply the paint in one direction rather than in a back-and-forth motion.
Once you've applied the touch-up paint, allow it to dry thoroughly, following the manufacturer's directions. Once it's completely dry, you can come back and apply a clear-coat (figure E), if your car has a clear-coat finish. Most new vehicles do have clear-coat.