I just bought my disco two days ago and come to find out the rear floor is not in very good shape. Between the two little seats in the back that fold up, and that whole square piece of metal what can I do? Should I rip it out and replace it with some sheet metal.

 

That is pretty much the only option you have. Cut it out, clean the are up well, use lots of undercoating, add a little reinfocement and a new sheet of metal. Make sure you also check around the rear door jams .
Mike