I mostly rely on a thin film of oil and storage in reasonably dry conditions. I've never heard of the mothball idea. Putting the steel in a sealed plastic bag may have as much to do with any perceived rust protection as the mothballs do.
Steel cut with a torch shouldn't be any more prone to rust than any other steel, except for the fact that the cutting torch will have burned off any protective oil film that may have been there.
As far as cleaning up rusted steel, you can certainly machine it off. For the "patina of rust" situation, I've found that one of those green "Scotchbrite" scouring pads from the grocery store and some kerosene or other thin oil does a really good job of polishing up rusted steel. (n.b. there are also generic brand look-alike scouring pads; they are NOT as good as the real Scotchbrite pads.)
Straight vinegar will soak off rust in a few days, but the resulting surface is extremely prone to rusting; oil it immediately after remving from the vinegar and washing and drying
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