Another vote for POR-15. It's different than anything else out there.
This is the procedure that I employ, and it's worked pretty well. First physically grind down the rust so that you're left with smooth, shiny metal. Even if you end up going right through, just keep in mind that the damage is already done regardless of how much you grind now. There will be the odd small pit of rust left, but that's ok. Then treat with Marine Clean and Metal Ready (both part of the POR-15 "Super Starter" kit)... The Metal Ready kills the rest of the rust and leaves a layer of Zinc which should help for rust prevention. Then apply POR-15 in a few coats.
It's a strange consistency that allows for fairly thick application, and when it dries, it's extremely hard but also flexible. And there's no way that any water is getting through a layer of POR-15 any time soon.
Judging from my other fairly extensive experience with the black-turning Rust Coverters, the POR-15 treatement will last much better. It's also much more durable for keeping repairs free of further damage like rock chips, which negates the other rust treatements pretty quickly. Despite the POR-15 instructions that say you can apply to completely rusty surfaces, I'd say that's pretty much folly, and advise grinding. A rotary tool like a dremmel is a good investment, and really some power tool is the only way that you'll be abe to grind down the rust properly.
Oh, you can also use POR-15 instead of Epoxy for filling any small holes with fiber-glass matt too. It's amazing stuff, really.
Edit: After looking at your pic, what I'd do is take an angle grinder with a wire wheel to clean everything, then prep and apply POR-15. It's not like you have layers of rust build-up to worry about. Although I've mainly used it for heavily rusted panel areas like the wheel wells, I think it would work really well for something like your rear end as well.