wate in oil 3
 

I havent done a leakdown yet, however I pulled off the intake manifold and found rust spots in a few of the intake runners, and also rust and water/sludge sitting on top of a few of the closed valves inside the heads...this would mean a bad intake gasket right?? or perhaps a cracked head??

Or a riser gasket, that is the most likely culprit. I took a cam lobe off from this on another boat I had. Is the oil milky, is there"white grease" in the valve covers? I would start there but watch it closely, wter will wash oil off parts and poof it is gone.