Working on a B18a block/B16 head.

I haven't been able to work on my engine awhile and the last thing we did was complete the bottom end (ARP rod bolts/PR3 pistons/etc). Well it's been awhile and I was going to finish putting on the head today but when I looked in the cylinder walls, there was some rust! It wasn't as bad as it could been, but the top/upper lip of the cylinders developed some rust.
I was just wondering if it would be okay to continue with it or should I find a new block.
The rust isn't bad but you can tell it's developing.

Also, after placing in the crankshaft, greased up and everything, it was kinda hard to rotate the crank. It'll get 'stuck' halfway... It can rotate all the way but I don't know what is causing it from fully rotating smoothly. Is it normal or is something worn out?

 

A picture would help but..
It sounds like the rust has just begun to build up. If that was the case, I would recommend a hone job with a light coat of oil afterwards.
concerning your block, did you plastiguaged? Did you torque within spec?

 

Take some WD-40 or Pb-Blaster and rub it into the rust with a paper towel--that should get rid of most of it. I would say it will be fine, unless its deep and goes into the sleeve.