I usually cut out bad metal w/ a cutting wheel.
When you put the new metal in tack weld it in with a few inches between welds, then go back and weld in between your first welds. Basically you will be performing a series of tack welds all around the new metal, moving from where you just welded to a "cold" spot of the area, welding there, and so on until it is welded all around. Take your time and warping will be minimal.
Then grind it down so that the welds are smooth. fill the area w/ filler, block it, prime it, block it again (this will reveal any low spots in the area). repeat this until you get the desired base you want to paint on. Wipe everything down with a tack cloth, tape off the area to be painted, paint, clear coat, buff.
When priming use an etching, high build up primer. That's how I've done all my body repairs that I wanted to last.
If you just want a quick temporary/permanent fix you can grind off as much rust as you can, then spray the exposed metal with a rust killer and fill with fiberglass. Then finish off with filler, primer, blocking, paint. I've had the quick fix last for a long time, and I have also had it fall out in a year. It's never as good as replacing the metal.
Good luck, and if I have forgotten anything someone else chime in.