1-Yes, a pitcher being rusty is supposed to reduce his effectiveness.
2-I think it's better to use a starter in relief in an early game to prevent him from becoming rusty, in fact, I do this during the regular season also.
3-If a player is on the farm in the playoffs it is correct that he is rusty if you activate him. Just like in real life, there is no minor league going on to keep him sharp.

Good luck,
Steve