Is a stainless steel teapot with rust inside still safe to use?

Yes, but i don't think stainless steel rusts. Iron on the other hand would rust.

*Stainless steel can rust if it comes into contact with certain acids or bleach or if the grade of stainless steel it was created from is of a lower grade. The rust will likely make the water taste bad when using it, but it is non toxic in small amounts. It is iron. If you eat a LOT of iron (more than 50-100mg a day) you can develop iron toxicity.

People in Northern Minnesota drink well water that is so full of iron it looks red. They do this all their life along with cook on cast iron pans and kettles. They live to be 90 to 100 years old. NO a little rust won't harm you if a lot of rust makes you live longer.