Champanier

I found a Free No. 5 on Craigslist, and bought it with enthusiastic dreams of restoring it. I'm already stuck. There appears to be rust underneath most of the paint. Even a very light wipe with an oil-soaked soft cloth brings up flakes of paint all over the machine.

Is there anything I can do about the rust? It seems that the surface paint is not really clinging to anything but rust. I was really hoping to bring back the decals, but I don't know how to approach this. I'd like to stabilize the finish and fix the rust before doing anything else.

[ATTACH=CONFIG]457282[/ATTACH][ATTACH=CONFIG]457283[/ATTACH]First photos are as it came; second are after wiping very gently with 3-in-1 oil. The decal started to come off immediately on the back part. If you can see the photos close up, you'll see that there's cracking all through the finish.
[ATTACH=CONFIG]457284[/ATTACH]The paint on the inside of the wheel arm seems to be a little more stable.
[ATTACH=CONFIG]457285[/ATTACH]The paint on top of the wheel cover piece comes off if I even brush against it. It seems to be mostly rust here.
[ATTACH=CONFIG]457286[/ATTACH]This is after wiping the center decal carefully with 3-in-1. Note the rust circle - I suspect this is what's under all the finish.
[ATTACH=CONFIG]457287[/ATTACH]The machine head from above.
[ATTACH=CONFIG]457288[/ATTACH]The underside is surprisingly clean - this is after a very brief wipe with Liquid Wrench.

Thanks very much for any help you can offer!