Got call from dealership today... They have now covered the failure, So other than having to go thru a few hoops to show the issue should be covered I very happy with GS with the final outcome I really just think somebody got fixated on the rust and failed to move past that. I will still keep updating this as the work is to begin but since the whole engine is being replaced I don't see to many issues here out. So overall I think if you can convince them a decision should be covered there is a very good possibility they will make things right as they have done in this case.
I know from reading post that some interactions are less than favorable so I have to admit going into this I was not very hopeful it would work out so I'm very surprised of the outcome but the plus side I hope to have a MH by the end of the summer.