Get a sawsall or grinder with a cut off wheel and cut out the rust spot, then weld in a new piece of metal. (this is not easy at all, and is easy to screw up your whole car trying it)
If its surface rust you can sand it off and then rust proof it and repaint it.
Putting in a chevy v8 is not easy at all unless you're used to doing things like that. However is a good idea for cheap power.
What Bama meant was if your car is rusty (especially in the floor areas and on the frame rails), a V8 conversion is not a good idea at all unless you plan on repairing the rust. Also, if the rust was bad on the frame before the repair, you may want to consider frame rail reinforcements on the inside of the car in the floor (not a bad idea anyway)...
Zs hold up pretty well under the stresses from a high torque engine, even a heavy one such as a 350. The R200 rear ends hold their own, and a healthy frame and body do too. However, when there are problems in the body and frame (such as rust holes) that affect their strength, higher torque can ruin your day, and an otherwise perfectly suitable daily driver.
As far as the body rust is concerned... you'll have to decide how bad it's rusted before you decide how to fix it.
Deep, pitted rust and rusted holes will require a patch. The best patch is sheet metal, as blaZed said. People have used bondo over a metal or nylon mesh to patch these holes, but I wouldn't recommend it. Bondo is meant as a touch up filler (for deep scratches and pulled dents and such), not as a sort of putty to fill large areas. Again, as blaZed said, Some pitted rust and most surface rust can be sanded down to clean, bare metal, primed, and repainted. Or, you can use POR-15 to prime the spot with before painting... it's great stuff - available at <http://www.zcarparts.com> in their online store.
Now the frame rust is a different story.
Frame rust is hard to decipher sometimes, as it can hide between the rail and the bottom of the floor pans, and is usually fairly hidden by the factory undercoating. Visible frame rust has to be cut out and patched if it's deep, or grinded down and rust-proofed if it's not too deep. Unless you're good with a welder and have properly prepped your car for welding, patching frame rails is best left to a pro.
Ok, there we go. I hope I helped a little; I think I covered most of the bases with this one... Good luck.
it seems just like minor rust spots. not wholes just little patches here and there. the exhaust has some rust on the outside... looks like plain old surface rust. its not too bad. as for the engine i am gonna have my dad and a couple of other friends help me out. first i need to find one