Hi Sahil- I don't think you need much theoretical guidance from us, since you probably already know that rust is less magnetic than metallic iron. Maybe you're looking for experimental ideas.
Why not work with iron filings? They have a lot of surface area, so you should be able to convert them to rust quickly. You can test how magnetic they are by how easy it is to pull them along with a permanent magnet. You could make the experiment more precise by making a little bag of the filings, hanging it from a string, and checking how much a magnet pulls it to the side. Then you could check the same thing with rusty filings. Of course you want to keep the weight of the iron filings the same in each case (same amount of iron, not including the extra oxygen weight (picked up on rusting). You have to be careful to use the same magnet, at the same distance, etc.
These sorts of experiments are always more fun if you have some definite question you want to answer.
Mike’s iron filings are a great idea. The problem with letting a big bar or horseshoe magnet get rusty is that the rust usually makes only a thin coating on the outside of the magnet, leaving most of it intact. For filings, all of the iron is very close to a surface which can rust all the way through in a short enough time.
(published on 12/19/06)