Neil,
Your machinist friend was correct. Along with many other uses,Camphor is or at least is an acceptable form of rust preventative. Wiki confirms this.
"Uses
Modern uses include camphor as a plasticizer for nitrocellulose (see Celluloid), as a moth repellent, as an antimicrobial substance, in embalming, and in fireworks. Solid camphor releases fumes that form a rust-preventative coating, and is therefore stored in tool chests to protect tools against rust.[7]"
http://en.wikipedia.org/wiki/Camphor