Sounds as if your stucco was laid too thin and with the wrong lath. The ';rust'; which is the orange that you see is because of cheap lath ( lath is the metal grid stuff they put up to hold the stucco till it sets up). Stucco is supposed to be put on in a 3 coat process in the end it should be 3/4 of an inch thick this is code in most areas and is the industry standard. Now as far as your paint peeling its because your house was painted too soon after the stucco was put on. Stucco is a cement product and is a very alkaline until it cures which takes about 3 days. The paint is peeling because it was put on an acid that ate the paint that was sticking to the stucco. The fix is simple now that your stucco is fully cured you just need to scape off the peeling paint and repaint.
'My paint is peeling and the stucco underneath doesn't look right.?
I haven't seen the red bloches but it sounds like the paint and sealants have failed allowing water to erode your stucco, you will need to remove the crumbly parts and I would re-do all the sealants. Check to see that the flashing is in place and correct also
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