Jack - Framesaver or LPS-3 or similar grease solutions will prevent further rust but you need to get rid of the rust in the frame first. You can use any one of a number of products to do this. I use Oxisolv from Eastwood http://www.eastwood.com which is a phosphoric acid solution but any phosphoric acid treatment will work. Most hardware stores have something called rust converter which brushes on like paint but then turns black as it cures, changing the rust to iron phosphate and preventing it from coming back. Pour it into chainstays and let it sit, slosh it around in the other tubes while plugging the holes, and let it dry overnight. I use it on the outside of a bare frame that is rusty too because it can get into the pores of the metal and prevent the rust from creeping back out, but then you should sand again before painting as primer doesn't stick to it very well.
Good Luck
Bob Freeman
Seattle