So I made contact on a couple of fronts and here's what I can share with you.
First, I contacted Hardy USA and exchanged emails with Ken Hodgen. Hardy does not refinish/repaint reels. Strike one.
I then gave Bill Archuleta a call and explained my situation. He's of the opinion that the old fly line may have been the culprit. He also does not finish or repaint reels any longer. He did offer some suggestions and I followed his recommendations:
Use Simple Green and a tooth brush to remove all loose paint, then rinse with water. I repeated this process 2 more times until the loose paint was removed from the inside of the spool.
Next, I used dishwashing soap and the toothbrush and rinsed with water. I dried it with a paper towel and it seems the loose stuff is gone. Let it air dry for a bit and swiped the inside and outsides of the spool with my finger. No more loose paint.
It looks like I going to be able to use this one after all. The inside has some paint missing but that will get covered by line and backing. There is some paint missing on the backside of the spool where the cog is but that will be covered once placed in the frame. More good news, the face of the spool has a sold coat of paint on it. If any of it has worn off, it's hardly noticeable.
I'll keep an eye on it for a few days just to be sure but I really think I'm in the clear now. If that proves it self out, all I need is line, backing and the right rod to put it on, then add water
Just thought I'd give you guys an update in case you run into this. Thanks for the comments guys.