I picked up a S5 engine a few weeks ago from a guy. There weren't many miles on it since its last rebuilt, but a bearing seized up. With the flywheel off, you can see the rear rotor bearing and some of the rotor has blued from the heat. When I replace the bearing, does it matter that the rotor has blued or will I need a new rear rotor?

 

This means there was a serious lubrication problem with the engine and that the thrust surfaces of the rotor are damaged. The rotor is junk, unless you intend to go through the pain in the butt procedure to remove the roll pins and replace the gear (and I'm not even sure the thrust surface can be fixed).