According to an article in the San Francisco Chronicle, cooking on a grill with loose rust is not safe. Although ingesting a small amount of rust is unlikely to cause problems, continuous ingestion of rust may cause intestinal tract issues.
Grills stored outdoors should be covered at all times to prevent rusting and other damage. A grill's drip tray should be checked for water, grease and other debris on a weekly basis. Walter that is allowed to sit in the drip tray causes rust. Regularly spraying a grill with vegetable oil and heating on low for about 10 minutes helps to protect your grill from rust.