Yes, your rusty smoker is safe to use. Rust isn't toxic, and I'm pretty sure that if some does get on your smoked meats, it will only serve to add additional iron to your diet.
The only possible danger I can imagine is if someone were to accidentally eat a large chip of rust, it could cause some scratches or irritation in the mouth, but I think it unlikely that anyone would eat that large of a piece of rust.
To stop the rust from forming, spray the inside of the smoker with an aerosol cooking oil before using it the first time. After smoking in it a couple of times, smoke and grease residue will bind with the rust, making a nice protective coating. Or if you like, you could use a wire brush to remove the loose rust before hitting it with the oil.
