The rust on the shock is merely surface rust and shouldn't pose any immediate problems. The top rubber bushing looks like its in good shape but judging by the compressed look of it, the top mounting nut may be over torqued a bit.

Are you experiencing any ride/handling problems or are you just concerned with the appearance of the shock?

__________________
"It's not about how fast you can go, but how well you can go fast."

Bob in Richmond

'97 S320 (LWB), Ruby Red Metallic, 73k miles
'97 S420V, Smoke Silver Metallic, 155k miles