Personally, I'd have replaced the spout! My time is worth more than trying to save what's there. The seat needs to not only be flat and smooth, but parallel to the seal that meets up with it. Tricky to do.
Thanks, I will definitely try to keep the seat flat, smooth and parallel to the seal. My time is worth something, but it isn't money - I enjoy the challenge of fixing stuff that isn't completely broken. Stuff used to be made to last a long time, more than a generation. I have some old hand tools that will outlive me, but a lot of the modern replacements are cheap junk. I don't think I should have to replace a bathtub spigot every 10 or 15 years. I thus consider the basic design of these pull up diverters poor, even defective.
So far I filed the corroded metal, and cleaned it with a mild acid to remove the built up and embedded calcium deposits. I used a hair dryer to make sure the interior was completely dry. I then mixed and applied a thin layer of J-B Weld as it seems easier to work than epoxy. J-B Weld is supposed to be workable with wet fingers but I did not use my finger to smooth it out as the space was too narrow. I used a split wooden popsicle stick to apply a very thin layer of J-B Weld. I am letting it harden overnight and will use a thin file wrapped with fine sandpaper to file it flat. I think a rotating valve (a simple cylinder with a hole in it) with both the valve and body made of a smooth plastic like nylon would have been a superior design. I will install the new Tub Spout Kit (Lift Knob and Diverter Gate for Moen, Lasco part 08-1049) but the old parts actually don't look particularly worn. It's the corroded seat rather than the gate or seal that seems to be source of the problem. Will let you know how my McGyver repair turns out.