I haven't done this personally, but I'll throw this out anyway. I ran across a pretty good rust remover.
http://www.safestrustremover.com/testimonials.asp
Not really cheap but good stuff.
I'll be in your shoes before too long because I plan on taking my 16 year old headers off, derusting and painting.
What I'd do is get a gallon plastic bottle and fill it with the rust remover, and either rig a hose, or just poke a small hole in it and let it drip on the sheared bolt. I'd place a bucket under the engine to catch the drips. After I'd let it drip till it was empty, I'd drill a smaller diameter hole in the bolt and use a screw extractor on it. the rust remover can be filtered and re-used by the way.
Sounds a little wacked I know, but you are in a tight spot - thinking outside the box.
Good luck.