Rusty Cast Iron Skillet - how I restore it to a useful thing of beauty?

I would keep the steel wool away from cast iron. I'm concerned that little bits could get into the iron and later transfer to food.

Agree mostly with Lori T and gandalf. A few amendments or variations....
Yes, I occasionally cook a dish with acidic foods (tomato or wine) in mine, but only for very short time, and do immediate clean up....don't let the acid sit in the frypan.
To maintain a good layer of protective seasoning, I usually only wipe out the pan with oil and leave it for next use (espeically if cooking mild flavored or similar foods).
If I used strong flavors and/or have burnt bits left in the pan, then I'll do a wiping, cleaning and season again.

It appears that only the inside cooking surface of your pan is rusting, and not the outside. This suggests that your cleaning efforts have been a bit more abrasive than was needed, and you've removed the "season" coating more than your oiling has been able to replenish. Honestly, you don't have to get that aggressive in the cleaning portion of things. Warm water and a bit of rubbing with a regular sponge, or even a nonstick type scrubbie should be enough in the majority of cases to do the task. You only need to apply salt, or perhaps a fine steel wool, to only those spots where things stuck. And you need to pay those spots a little extra attention, and give them a bit of extra oily love afterwards. You also want to be using the pan to fry or saute with primarily, always with a bit of oil or fat, at least until you build up a good layer of seasoning. Avoid acidic ingredients like tomatos, and even once your pan is well seasoned, limit the time it's exposed to them. You can use whatever fat or oil you like to reapply the coating each time, I have a preference for grape or canola oil for their high smoke points. For the current pan, I suggest you use some fine steel wool to remove the rust. Dry it and apply a thin coat of oil, and then bake it at 450-500F, between 230-260C in your case. Bake it for at least 1 hour, turn off the oven and leave it to cool in place. Then give it a good inspection. If it looks nice, shiny and black all over- you are good to go. Just ease off the scrubbing and keep putting on that storage coat of oil. If your pan is sticky, rebake without oiling again. If it just isn't quite shiny black, oil lightly and rebake again, cool and recheck it. Give it some love, but without quite so much salt and scrubbing- and pretty soon your pan will love you back.