Is the application of linseed oil to the inside of a steel frame still recognized as a good way to prevent the formation of rust on the inside of the frame?
The preferred way to do this is to use something like JP Weigle Framesaver. This is an aerosol so you're more likely to get the product in more places which should be protected. And it will dry much quicker (though it has been known to make seat posts somewhat prone to slipping).
However, companies like Surly still state boiled linseed oil and motor fogging oil are acceptable ways to protect the inside of the frame from rusting. John Allen also discusses a product called Boeshield T9.
You're only saving about 5 bucks probably by using boiled linseed oil, so I don't see the point in preferring it unless you already have it / have some problems with aerosols.
I have used boiled linseed oil on two steel bikes, one of which I ride daily through the slushy winters and flooded springs of lower Michigan. The linseed lays down a gel like coating that does a pretty good job of preventing rust.
I had a can of linseed oil from a woodworking project, and decided to give it a try on my frames.
JP Weigle Framesaver is easier to apply, so linseed oil has only three advantages: its cheaper, it smells great, and it is pretty classy. It may or may not be more environmentally friendly.
To apply, strip your bike down to its frame. The only part I left on the frame was the headset. You will want to remove the fork and its bearings, and protect the headset cups and races with masking tape.
Pour the linseed into the frame and slowly rotate the frame to ensure all of the tubes are coated. I usually rotate for about 5 minutes, and then place the frame on its side. I usually do two or three applications before reassembling the bike.
Be sure to clean off any oil on the exterior of the frame before it starts to cure, but it can be cleaned off with a degreasing agent.