Engine RUST!!!!!

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I'm with the "clean it up and run it!" crowd. Neither that tranny nor the engine looks hurt to me, based upon photos shown. I would avoid the nasty chemicals and abrasives when cleaning. Using gasoline as a solvent may get you injured or killed. Diesel sounds safe. Lube it good with engine oil on reassembly and prime the oil pump with a drill prior to starting for first time. Good luck.
 
For my Tranny & Tcase I found the recommended GL 4 gear oil at carquest, I've read where folks use GL 5 in their tranny's with no issues. I'm in the camp that regular dynosaur oil is fine in my F engine. 20-40w is what I used. I did squirt some Lucas zinc additive in. Lots of people are big believer's in Synthetic oil. I'm sure it's just fine if you prefer it.

Here's a recommended Lubricant page in my Haynes manual.
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