A quote from Golden Gate Gardener on the identification
This happens because some mites enter the flower buds and start sucking out the sap. The ovary of the flower is misshapen, so the fruit is, well, outlandish. Citrus bud mite is apparently particularly a problem near the coast in our area, just where we depend on lemons for most of our garden citrus.
And in relation to that, I found another post on AllExperts about getting rid of them
To insure you kill all activity, treat once a week for 3-6 treatments. This schedule is necessary in the warmer months when cycles develop quickly. If it is the off season and development is slower, treat 2-4 times every two weeks. Don't waste your time with standard materials like dursban or diazinon. Like most arachnids, spider mites are not too vulnerable to these active ingredients. The best material for spider mite control is called CYFLUTHRIN.
A comment on the Golden Gate Gardener site also mentions that since the mites only attack the flowers of the tree, even though the fruit might not look very appetizing, it should be safe to eat.