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Considering you are using a buffering substrate, 0-1 KH is normal. Actually, it's preferred to use RO/distilled water with GH minerals so that you have more stable water parameters. Buffering substrates work by removing KH from the water (aka it "absorbs" the KH - KH is one thing that can help raise pH and/or keep it stable) and release tannins, humic and fulic acids into the water column. The tannins and acids lower the pH. Each time you add more KH into the tank via water changes, CC, limestone or any other means, you can have fluctuating parameters which can result in stress to the inhabitants. In short, your substrate is working as it should and your test kit is reading it correctly. Try measuring the KH of the water you are putting into the tank. I honestly could care less about ppm! ? If it's 4 drops, then you have 4 °GH, aka 4 German Degrees of General Hardness. The ppm tests aren't normally very accurate so it's easier just to say in German Degrees, aka just 4 GH and 0 KH. Yes to getting the smallest. Also would recommend raising GH to around 7 with a GH remineralizer... unless you can find out what GH the shrimp are being raised in, in which case, you want to match that GH. That said, since you have the tank set up the way it is, you could probably go with some tiger shrimp or even low grade crystals. Just because it has less doesn't mean it doesn't have zero... it is less nutrient dense so releases less ammonia and thus should be a faster cycle - in theory. I can agree with you in the fact that higher pH can help the bacteria grow faster in a tank... but if you are using a buffering substrate, I recommend keeping the pH low with 0 KH water and probably 3-5 GH, minimum, for the bacteria. Sure, it may take longer to cycle, but on the flip side, the substrate should also last longer! :) I have 3 KH out of tap, my sister has 10 KH, or there-abouts. We live maybe 5 miles apart near the same river but I'm on city water (aka river water) and she's on well water (aka underground aquifer). If we both set up tanks using tap water and added in buffering substrates, her buffering substrate which helps keep the pH low would exhaust faster because her water has more KH in it. Meanwhile, mine would probably last longer since it has less. That's with the assumption that the tanks are set up the same way with no CC/limestone or any other thing that raises KH and we do the same amount of water changes and frequency of them. If we wanted the substrate to last longer, we'd use RO/distilled water instead with GH minerals. I've heard of people with buffering substrates lasting 3-5 years with RO water and GH minerals and tanks still going strong! I've also heard that shrimp breeding can slow down or completely stop in a tank that's 1-3 years old so it's a good idea to replace the substrate anyway. People who use tap water on a buffering substrate may only get 3-10 months use out of it, depending on substrate and KH of their water/other items in tank.

That does look like rust disease. We have had a couple of success stories with rust disease lately. Read up on the Diagnostics and Diseases thread to see if you can adopt of of the methods.