crappy paint doesn't turn into hard lil bubbles. it's deffinately rust. and if it is under the paint, it came through fromt the inside, which is bad. the metal needs to be chopped out, and have new pieces welded in. you're looking @ a few hundred juss in labor... depending on how large the areas are.

what prolly caused it was the rubber thing that wraps around the inner edge of the wheel opening. it is designed to keep water from getting in between the two panels. the problem is... once water does get in there, you run into huge rust @ some point. personally, i wouldn't even have those put back on, unless they are sealed very well w/ silicone of some kind...