Yes, that pin needs to be removed. With all the rust present, the pin may be stuck, soak in PB Blaster as SS mentioned.
SS is also correct that, that's a bunch of rust in that area, Stainless steel prop shaft, plastic prop and cap, something has to be steel in there (it shouldn't be).
I would be careful hammering on the pin as you don't want to bend the prop shaft, I'd place something under the prop's collar, so the force is being transferred to the prop collar and not the shaft. Also, use a flat face punch the same diameter as the pin, so the end of the pin doesn't mushroom.
Be careful not to mess up that plastic prop, replacements cost $100.