Question: It is safe to used 400/600 grit sand paper to remove that surface rust on the edge of the rotor???
I see no real issue in cleaning up the rust.
Considering your description of the brake fluid …
Suggest first attempting to open all four bleeders.
If you can, do a gravity bleed on all four wheels while keeping the fluid level full in the master until you get clean fluid from all four wheels.
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