Sounds like a classic case of hydrolock to me. Motor was probably hard to crank because 1 or more cylinders were full of water. When you put the extra juice to it and got it to start is when the real damage was done. Probably bent a connecting rod and/or busted the crank, windowing the block in the process. Take a good look at the exhaust for that engine before you ruin a brand new crate engine.
Hope your luck gets better. Maybe you should just stick to taking friends out on the boat in the future and avoid the in-laws all together!