I worked at Sears for almost 2 years in the tool/fitness/paint/L&G section. Our store was pretty lenient on what you could bring back. If I recall correctly, rust technically isn't covered under the lifetime warranty since the product didn't actually break or malfunction in any way. Now if the rust is preventing you from doing what the tool is intended for, then yes, that's definitely covered. If it's just cosmetic though, you may be taking a chance. We personally didn't care...as long as you had the new one and the old one at the register we'd happily just do an exchange. I'd just break the tool in some way and then bring it in. The one thing you have to watch out for is certain tools that don't specifically say they have a lifetime warranty (people assume all Craftsman hand tools do). Torque wrenches, riveters, C-clamps, bar clamps, and a few others do not carry a lifetime warranty. Make sure you read the package first!
For anyone who doesn't know, Craftsman doesn't make tape measures anymore because they were losing a lot of money due to all the exchanges taking place with them. When they were the yellow and black version they had a full lifetime warranty...but those got phased out and replaced with the red and black version which had a full lifetime warranty *except* for the blade. They offered replacement blades you could buy in the store. Well, if the blade broke on one of the red and black ones, people would just break the switch or the case or some other part on purpose and then exchange it.
Now they offer either a refund or a one time replacement with a Stanley or Komelon tape measure. Know the right people (or have previously worked at Sears) and you may be able to convince an associate to swap out a stainless steel 30 foot Komelon for your crappy 20' Craftsman
We got some beautiful tools during the time I worked there that people exchanged. The one that stands out the most was a commercial grade torque wrench from the 50's. It was in perfect shape with the original box and included the document showing the torque specs for different cars lug nuts (Chevy, Ford, Chrysler, etc). It had a nice weight to it and was all metal. I kept it behind the counter for months since I wanted to postpone it's melt-down phase as long as possible. As you recall, I said earlier that torque wrenches didn't have a lifetime warranty...however are department manager at the time didn't care. It was too nice of a tool to refuse.