Regarding your frame: the welds on the down tubes of the cage are not factory, and likely as you suspect from a fairing being mounted. Obviously the rust needs to be dealt with. If you undertake grinding the weld-globs off, do take the next step and re-weld that sleeve. Those sleeves were fine if left unmolested, but there is a good deal of rust as a result of the attachments there, and I'd go the measure of repairing that weld for surety's sake.
Once around the bottom, then up the sleeve on the exhaust side. This will restore all the integrity unless you discover some actual tube rot as you prep for the welds.
The good old seat gusset: if I understood your post correctly, you want to "bob" the seat hoop as far forward as the shock mount? If you do this, replace the cross brace (seat gusset) with some flat stock or square tubing, welded back into the frame at the shock mounts. This serves 2 purposes: lateral rigidity of keeping the frame (under good deal of stress at the shock mounts) in tandem, and will prevent the frame from being "splayed" from seat/rider weight.
There have been many who cut and do not replace this gusset, but it is not prudent. Obviously, check for tire/fender clearance with rider weight and suspension travel to determine where to weld the gusset back.
Apologies for the lengthy post- by the way, nice looking project to start. You live in some damn pretty country up there and were it not for the frickin' winters and black flies, I'd be jealous