Pieces of steel in cylinder??

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I was anticipating replacing the core plugs, but they look pretty good to me.

Replace them, they are cheap, they rot from the back side, where you cannot see the rust.
Just sand the edge of the plug, and the block with 180 grit sandpaper, use permatex, and install with a large socket, they are easy to do.
Mancini Racing Brass Freeze Plug Kit