I would remove the lower hoses and backflush the radiator through the bottom outlet necks with a garden hose which is the opposite direction of the normal flow. It flows from the top down and the rust gets caught in the tops of tubes. Its better if you can remove the radiator and flip it upside down that helps the junk get out. As for the block, pull the upper necks off the heads, you will already have the lower hoses off. Stick the hose in the head and let it run until the water comes out the bottom clear. That will get a lot of the rust out of there. And if you do decide to use a rust chemical it will be more effective if you get as much of the rust out of there first before introducing the rust remover. It could use new thermostats and hoses anyway if they are that old.
I had a neighbor with a '36 GMC big truck. He attempted to flush the radiator with compressed air (120 lbs) and he split the soldered seam on the top tank. You want to be careful not put too much pressure into a radiator.
Before replacing your thermostats check them. In the past at work I have gotten a few new thermostats that were bad at work. They would not open at any temperature. We started prechecking them using the boss's coffee cup when he wasn't around. We would heat the water in the microwave and then drop the thermostats in "his" coffee cup to test the opening temperature with an infrared temp gun before we put them in. All the mechanics used his coffee cup for that test. He left it right there on the microwave, it was the right size, was just too convenient, and it was funny. I hate to do things twice, it's bad enough to do them once. If I can test a part before installing I do.
If it does have a bad #2 cylinder, which it looks like it does, I wouldn't waste money on rust chemicals at this point. 30 lbs. is not enough compression to fire a cylinder so essentially the cylinder is dead and you might be looking at a rebuild. There is usually a reason somebody stopped driving a vehicle and that dead cylinder could be the cause. If it does need a rebuild the block will be disassembled and cleaned.
There is always a "slight" chance something simple happened. I bought an engine out of one owner '51 Merc that was running bad with low compression on one cylinder, The mechanic convinced the owner that had driven it for 60 years that a flathead can't be driven, they are not dependable. You want something you "can drive" . He sold him a Chevy conversion. I bought the standard bore Merc motor and the overdrive trans from the mechanic for $400.00 When I pulled the intake off the valve guide keeper had fallen out so the valve had no spring pressure to hold it closed. I don't know what would have cause that , maybe a weak valve spring? The guide would have had to be able to move up to let that keeper fall out. That would have been a cheap fix. I felt really bad for the original owner, and the Merc too.
Do the compression check again. Remove all the plugs and hold the throttle open, the air needs to be able to fill the cylinder which it cannot do with a closed throttle plate to do a proper compression check. This time squirt some oil in #2. That will make the rings temporarily seal and if the compression comes up the rings are bad. With #2 on TDC (valves closed) take a rubber tipped blow gun and blow air into the cylinder and listen for air escaping from the intake or the exhaust. That will tell you if you have an intake or an exhaust valve that is not seating. You might have to put the car in gear to prevent the air from pushing the piston down from TDC but probably not, with only 30 lbs of compression.
