Iron rusts if it is exposed to oxygen with no protection. Water has lots of oxygen so it likes to make iron rust. The block, heads and water pump/impeller are all made of iron. So if you use distilled water it is just going to keep on rusting. Vinegar is an acid which in enough quantity can be used to eat the rust and iron but inevitably it will be added with water which will try to make the iron rust anyway.
As George said use pre-mixed antifreeze and just change it a little more frequently as it has a rust inhibitor added. After a couple of changes it will be clean again.
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