Just because the furnace has rust inside it does not necessarily mean it needs to be replaced. If it has big flakes of rust falling down then probably so. If it just has some surface rust it may be okay. I would recommend having a qualified professional that you trust come out and examine the heater for cracks and leaks. Also check all the safeties and the venting of the unit. If you live in a humid climate rust is a regular thing. If your heater is real old then you really need to have is professionally inspected every year. And even if it is not old it is a really good idea to have it professionally inspected every year.
It could be underfired or too much airflow causing the flue gasses to condense inside the HX. It may be a result of running the fan continuously and short cycling the burners. It may be a sign of something worse, but I would probably have it looked at by someone who you can trust and someone who can really do a combustion test on it. They will need to have instruments, not just a mirror and a flashlight.
I agree, any home with a fossil fuel should have a CO detector just as important as a smoke detector in any other dwelling.
Thanks for the responses everyone. This is my neighbor's furnace which is 15+ years old; we got a new gas furnace back in January and he wanted to discuss. He said it's been short cycling for the last month so he did some looking around and says the heat exchanger looks like it is rusty on the inside. Don't know much more than that but he's got a pro coming out this week.
I basically told him what you guys are saying -- make sure you have a CO detector and call someone who knows what they're doing.