What about rust in the tank being sucked up when the fuel demand is greater? Also, no spark? Did you take a look at the plugs, wires, and distributor? Check the coil, as these can go bad as well.
I agree with blackice280zxt, the most important thing is to have a shell as close to rust free as possible; that is the foundation after all. Whether or not it is worth $1200 is entirely up to the person that will, or won't, pay that. I personally would offer $800, considering what you have described.
Mine or theirs? Mine was, and still is, State Farm. Of course everything varies from state to state and incident to incident. The key thing is to know your rights and not be taken advantage of.
From working on projects in the past all I can say is plan, plan, plan; and then plan for the unexpected. Don't let time dictate what you want to do, have an idea of what you want to accomplish and wait until you have the funds to do it. If you don't you will only regret it in the end.
Always know what you are getting into, don't get burned. And, like Murphy's law, even though I knew I was buying a parts car, for a great deal, the 280ZXT I wanted became available shortly after I bought the parts car; short on funds.
If the car is truly rust free then you already have one of the hardest parts to come by. If you are wanting to drive the car right away and repair or restore it a little at a time then you would definitely want to make sure the car is safe to drive; otherwise a lot depends on how deep you want to go into a restoration.