Rear struts rusting through is quite common on these cars (as it is with 156s and 147s too, of course). When you replace the rear shocks, I would strongly recommend that you also replace the long lower bolt; it's common that they are slightly bent, even when they come out easily... which is not often!
With regard to improving the ride, it's important to remember that this is an old car, and the ride wasn't exactly class-leading back in 2004. Before getting carried away with uprating your suspension, it'd be a good idea to thoroughly check everything else, particularly the state of the front lower wishbones which are particularly prone to wear, especially on the diesels. Pay special attention to the rear bush on the lower wishbone; it can be badly worn without any major visible deterioration; in fact they are rarely picked up on MOT tests, even though they are worn out.
Out of interest, what size wheels are you running?
Over the years I've fitted numerous different suspension set-ups to customer's cars, and coil-overs seem to be the least satisfactory for the more "average" driver. Koni FSD shock absorbers seem to be well-liked by people who use the car as their everyday transport.