2004 Fuel Water Separator help?

[Moonernet]

Hi All-

I recently purchased a used 2004 stock F350 with the 6.0L. Great so far...

Only two minor issues -- about 2-3 hours after leaving the dealership, the water in fuel light came on. Of course, I suspected water in fuel -- there is a crappy little gas station right next to the dealership that they use to fill for test drives. My guess was that they didn't sell very much diesel...

So, I grabbed my hex wrenches and went hunting for the drain plug. Turn, turn, turn -- keep turning -- the drain plug just rotates freely inside the hole. There is no leakage. Eventually, with a little rocking back and forth, I was able to get the drain plug out. Maybe 4-5 drops of water, but the rest is clean fuel and it was dripping very slowly. Was able to re-insert the plug and no leaks. Bad news, after I start the truck back up, about 30 min later, the water-in-fuel light is back on...

Questions:
1: Is freely rotating plug normal? Seems to me like the threaded part of the plug was stripped or something -- but not sure.
2: What is the plug supposed to look like?? Are there threads on the tip?
3: After I get the plug out, how quick/slow is the flow supposed to be?
4: If I have a water-in-fuel indicator lit, how much water should I expect to come out??
5: Could this be a bad water-in-fuel sensor?
6: Do I need to replace the entire fuel filter/water separator assembly if the threads in that hole are stripped?


Second issue -- when I remove the fuel filler cap, I notice that there is a rusty residue from the lip of the opening to about 2" into the fuel fill neck. It is a very fine "dusty/muddy" rust, not big chunky/flakey rust. How can I safely remove this??

Thanks for your help!!