UPDATE:
Block crank pistons and rods dropped at the machine shop. It cannot go 60 over only because 20,000 will not clean it up. He's going to have the owner look it over but his gut was to sleeve it. He did not see anything wrong with the crank, but he hasn't measured just a visual. He's going to check the line on the block to the crank and magnaflex the block.
He also wasn't a bit concerned at all with the rust in the water jackets.
He said no doubt water got into the cylinder somehow and given the fact that the motor sat a while even though it was sealed up with parts in bagged he said it doesn't take much moisture for something like that to happen and letting it sit.