holes in muffler
#2
There are weep holes designed to get rid of excess moisture that are supposed to be there. If there is rust making holes, than replace the muffler. After removing the required rust to get to the metal to do a proper metal repair, there won't be much metal left. Some people have used all kinds of stuff to plug muffler holes...mufflers are cheap. Just replace it. Check all of the rest of the exhaust systems, if the muffler is bad there is probably other areas that need attention too.
#3