As others have said, it's all about what you're after, and sounds like a car for a bit of fun. I'd go with Dr. Jeff's recommendation and that is to grind it down to metal, give it a really good dose of rust converter, let that dry out, then use a good quality filler, as there will be holes (don't be scared, if holes are big, leave the filler a bit longer before applying so its a bit thicker and you'll need to be quick) then several good coats of a rust inhibator primer and then top coat and a clear coat. You should be able to easily source a couple of colour matched cans of spray and touch it up yourself, may not be Shop Finish, but $6,950 cheaper than the $7,000 quoted by the Body Shop.
Also, your local body shop is talking bollocks saying it won't get any worse! As the saying goes, Rust Never Sleeps, and if it isn't going to get any worse in California, then it wouldn't be there in the first place. Trust me, I've had rust removed from a couple of X1/9's and what lies below the surface is a lot worse that what you are seeing. Think of it as a fortunate warning sign and kill it as soon as you can. Once sorted, the golden rule of rust prevention, Wax & Polish, Wax & Polish, Wax & Polish at least once a year. Not only does it keep your pride and joy looking smart, but is the first line of defense against rust.