I've been cooking with cast-iron for about twenty-eight years now and have learned a bit about seasoning over that time. I'm with Michael on this one. Use some soap and something like scotch-brite pads to scour the pan. Make sure to scour the whole cooking surface so that the entire pan will be uniform. Many people have stated that shrotening is the best seasoning oil. But shortening, after all, is nothing more than hydrogenated vegetable oil. That being the case, use it, or any seed-derived cooking oil to season the pan. I have never experienced any difference in cooking performance no matter what oil I've used. Of course, animal fats (lard, suet, tallow, butter, etc.) will go rancid over time. So avoid those.
AFter scouring the pan surface until smooth, (and yes, even steel wool will do a great job here), immediately dry the pan and coat inside and out with a light film of oil or shortening. I put mine over hot charcoal to prevent smoking up the house. Let the oil bake into the metal (polymerization and molecular bonding between the iron and oil). For a really durable seasoning, after the first layer has turned hard, recoat and re-bake. Do this three to four times to create that dark patina that is the hallmark of a well-seasoned pan. After the pan is seasoned, let cool and rub a thin coating of cooking oil all over it to prtect it from the air.
This method may seem like a lot of work, but the final result will isolate the base metal from anything cooked in the pan. You will be able to make acidic foods just like in stainless steel, without any iron or metalic taste added to the food. In my pans, eggs, pancakes, even melted cheeses slide accross the cooking surface as if I were using brand new non-stick. And yes, I too have found rusted cast iron and sanded it clean through to the base metal. I like to use steel wool as the last scouring agent as it creates a very smoorth surface. Then, I just seasoned as stated above to restore the pan to proper use.
The same methods can be used to restore rusted high-carbon steel kniives to original performance, without the heat of course. Once cleaned and restored, the knives have to be coated with a lightl oil coating to prevent rust.
Your pan is not ruined. The seasoning was just compromized. Remember, egg yolk is a natural emulsifier and will take the paint right off of a car. If left in a runny state on a seasoned pan surface, it will do the same to the pan seasoning. Cooked, it's pretty inert. And when it's burnt on, well let's just say that even my cast-iron will stick to some things. I just scour with scotchbrite and re-season when that happens. I've even used river-water and sand to scour my pans when camping. You just can't kill these pans.
And for the record, I believe that among the many talented and experienced cooks on this site, Michael is among the best when it comes to metalurgy and technique. Andy M. is great as well.
Seeeeeeya; Goodweed of the North