100 % percent that is induction hardening. The far right rod cap in pic 2 looks blue but I'd say that is a reflection pending a better pic / pulling the rod cap.

As for the rods being loose, from what I recall, these engines use piston guided rods rather than crankshaft guided rods.

I'd be more concerned about the rod sticking out of the oil pan area. . . . tee hee..