First how bad is the rust? Light coating or so bad it has caused holes? How pervasive is it? One or two small spots or over a large portion of the frame? Is it in a critical place like at the highly stressed firewall area or a low stress place like the frame horns? These are important questions which have a bearing on how you would attack the problem.
The first general principle is to get rid of whatever rust is there down to white metal. Unless it is stopped, nothing else matters. Then if it is too severe, over too much of the area or in too critical a location, seriously consider replacing the frame with a good one. If there is no replacement available, then repair is the only option. Yes, it can be repaired with cold rolled steel of preferably the exact same gauge as the original. Cut out the old cancer and weld in the replacement. It goes without saying that the welding skill need to be top notch since this is a life and death issue. If the cancer is in a non-critical place (not too many of those on a frame) then once it is clean it can be bondo'd and painted.
If you are doing a frame off restoration, the wise thing to do is have the entire frame sand blasted to white metal so it can be evaluated, repaired if necessary and protected from further rust before reassembly. I prefer to have my frame powder coated which includes a thorough sand blasting and maintenance free, life time protection from the coating.