Aaron - rust on the magnets isn't going to cause a problem, there is no "ground" for the magnets, not supposed to be one for the stator - the coils "float" above ground, just supposed to be supplying AC voltage to the Voltage Regulator.
Did you pull the center (charge) wire from the Voltage Regulator and measure AC (not DC) voltage across the two outer connections (the wires coming from the stator)? At 3000 RPM you should be reading 28 volts <u>AC</u> or better. I like using a regular old analog meter for this, it's easier to read than a digital one for some tasks..
If you don't have that 28 volt AC , you've probably got a bad stator. If you know how to read resistance on your meter, you can unhook both of the leads from the stator, connect one of the ohm meter probes to one of the stator leads and the other probe lead to the engine block. You should not get any reading if the stator is good, if it shows anything other than infinity, the stator coils are shorted to ground.
I don't have a Kohler manual on this laptop (for shame) so I can't tell you what the total coil resistance is when measuring the two stator leads, but you should have a fairly low reading in ohms; if that is reading infinity, the coils are open (again, bad)...
Edit - I see Charlie posted a really good link, I'll leave my old timer comments up just in case...