Rust on kettle dangerous to consume?
Background:

Iron exists in a wide range of oxidation states, −2 to +6, although +2 and +3 are the most common.

How is Iron Handled by the Body:

According to Wikipedia:


  After uptake in human cells, iron storage is carefully regulated; iron ions are never "free". This is because free iron ions have a high potential for biological toxicity. 



Performed by the protein Transferrin that traps the Fe$^{3+}$ ions.


has such a high stability constant that it is very effective at taking up Fe3+ ions even from the most stable complexes. 
At the bone marrow, transferrin is reduced from Fe$^{3+}$ and Fe$^{2+}$ and stored as ferritin to be incorporated into hemoglobin.



Dangers of Iron:

A number of sources reference toxicity and dangers of iron:


The Food and Nutrition Board of the U.S. Institute of Medicine indicates that Tolerable Upper Intake Levels (known as ULs) for iron is 45 mg/day. [Source]. 


Note: Tolerable upper intake level (UL) is the highest level of daily nutrient consumption that is considered to be safe for, and cause no side effects in, 97.5% of healthy individuals in each life-stage and sex group. 

The World Health Organization (2003) suggests:


  The average lethal dose of iron is 200–250 mg/kg of body weight, but death has occurred following the ingestion of doses as low as 40 mg/kg of body weight 

Of course, one can get iron poisoning due to an acute overload of Fe.


Toxic effects begin to occur at doses above 10–20 mg/kg of elemental iron. 
Ingestions of more than 50 mg/kg of elemental iron are associated with severe toxicity
See Abhilash et al. (2013) for an example study examining fatail Fe overdoe in adults. 

Note: inhalation of Iron Oxide dusts is complicated but potentially dangerous, but should be of no concern to you.


However, outside of trying to OD on iron supplements, it's not easy to consume that much iron. So even given all tose nasty numbers, I wouldn't be too concerned


According to 2 citations (Greentree &amp; Hall 1995 and Goyer 1996) in The toxicity of iron, an essential element: 


  Because iron must be ionized to be absorbed, metallic iron  and iron oxide (rust) are not generally of concern when they are ingested.



Even when iron is heated (and supposedly ionized) very little becomes available for ingestion:


This source cites a 1986 study that found that cooking in a cast iron skillet added typically 1-4 mg (though as high as 7 mg) of iron into the food (well below dangerous levels)
Besides, iron oxide is already present in most drinking water.


Concentrations of iron in drinking-water are normally less than 0.3 mg/L [source] and is seldom found at concentrations greater than 10 mg/L or 10 ppm [source]. 



Bacteria connection:

There are bacteria associated with rust:


Iron-oxidizing bacteria are chemotrophic bacteria that derive the energy by oxidizing dissolved ferrous iron


However, these species are aquatic, and are more likely to be found in ground water or well-water. (not living in your kettle). 

What about Tetanus? From Wikipedia:


  Tetanus is often associated with rust, especially rusty nails. Although rust itself does not cause tetanus, objects that accumulate rust are often found outdoors or in places that harbour anaerobic bacteria. Additionally, the rough surface of rusty metal provides a prime habitat for C. tetani endospores to reside in (due to its high surface area), while a nail affords a means to puncture skin and deliver endospores deep within the body at the site of the wound.[21]



In other words, rust really has nothing directly to do with tetanus, a soil-dwelling species. One might just inconveniently find a sharp, rough rusty item in the soil to introduce the soil-living species into their bodies.(again, it shouldn't be a concern in your case).



Conclusion Would it be safe to drink water boiled in this kettle?

Almost certainly. But if you're concerned about it, just sand off the rust and  boil it to kill off anything that might be living there (more likely from old food/drink residues). Otherwise, get yourself a new kettle :p. 



Citations


Goyer RA. (1996). Toxic effects of metals. In: Klaassen CD, ed. Casarett &amp; Doull’s Toxicology: the basic science of poisons. 5th ed. New York City, NY: McGraw-Hill;715-716.
Greentree WF, Hall JO. (1995). Iron toxicosis. In:Bonagura JD, ed. Kirk’s Current therapy XII  small animal practice. Philadelphia, Pa: WB Saunders Co;240-242.
WHO. (2003).  ORIGINALLY PUBLISHED IN: Guidelines for drinking-water quality, 2nd ed. Vol. 2. Health criteria and other supporting information. World Health Organization, Geneva, 1996.