@Malka: You're right, you shouldn't use a rusty pan to cook with. One of the reasons that cast iron cookware can last whole generations is that if it gets rusty, you can always re-season it!
To do this, first you heat the pan up (not too much -- you need to be able to handle it), then scrub all rust and any crustiness off with a wire scrub and hot water. Don't use soap, and dry it off immediately so that it doesn't rust again. After you've washed and dried the pan, you can use the same method for seasoning cast iron that I described in my first comment. Hope that helps!