Seemed to cleanup pretty well. Nice find!
That looks like it will be a good runner.
The little rust marks in the one cylinder might cause some grief but it should run great.
Someone suggested that putting cut-down sour cream containers in the bores can keep stuff from falling into them.
I think cutdown oykos yoghurt cups fit well too and are a little shorter.
It helps me clean the surface and chase the bolt holes without worrying about stuff falling down into the bores.
I don't know how water got into this motor. It was in a thick plastic bag in a sturdy double-walled VW box...they are packed upside down (deck facing down) so that's where is settled but it is odd.
The worst corrosion seems to be below the top ring line so it should be ok to all but the most particular. I do have new rods and crank for this thing along with a new mech head but who's going to pay freight for a 40 yo motor? I have the old-school timing covers as well I think.