As a new cruiser owner, I'd say $1200 is a good deal
I wish I had found this site before purchasing mine to get a better feel for the prices. I paid $1900 for an '82 with an engine that needed to be rebuilt and rust on the rear quarters and tail gate. I really wanted the V8 conversion and thought the it may be above my skill set, this one already had one so I jumped on it. On top of that, I'm not a purist, but hated to take out the straight six from another one... I had a 1971 FJ40 in 1999 that I never got running but did a little research and there is a ton of love for the original engines.
The interior of mine is in great shape everywhere except the carpet in the rear and the drivers seat.
I haven't updated my website with the engine install steps yet, but did pick up a complete V8 with just 60K miles for $400 and it cost about $700 in parts/hoses/gaskets/etc to get it up and running.
$600 in tires puts me at $3600 so far, the guy I bought it from was a dealer and it was his son's truck, but he wanted my old daily driver for his lot and I ended up making $2K profit on it so I'm really in for only $1600. (In theory)
In the end, I know I will not make a profit on this, but I also do not plan on selling even if I switch to a different daily driver. I went for personal preference and local ease of purchase and didn't get the best deal, but man am I happy with this cruiser!!! 14 MPG and V8 torque...
Sorry about the rambling, but I searched for a while mostly e-bay and autotrader and in the end it was convenience, I probably could have found a few hundred $$ better deal but I would've paid that getting it to TX.
Sounds like your purchase is mechanically sound and a fun project. If the problematic rust is limited to the body and not the frame, I'd say go for it.