my friends TL paint has chipped in a few places(dime size) and some of them has rusted. I told him to take a dremel and sand off the rust first and then use some touch up paint to fix it up, but i just wanted to find out your guys opinion on it and if you have better ideas.

 

A dremel? Maybe...
How about trying some Naval Jelly first?

 

There's some really good supplies for this sort of thing at Eastwood Company's site ( www.eastwoodco.com ).