Thought I'd post the result. There ended up being a pin hole under one of the valves. I sent the heads to a local guy who found it. I ended up getting a new head from a junkyard truck and the local guy retrofitted the valves to it, because they are a lot heavier duty and marine grade. Boat has run great since I got it all back together and running again. Fingers crossed.

2000 dollars for a Closed cooling kit, I'd suggest you get it, but you may as well replace the 2 cylendar heads while your at it

How would the valve allow water into the engine? Sounds like a leak between the riser and manafold.

I just bought a 96 Sea Ray 270 with Mercruiser 7.4. Checked oil when first bought it and was fine. Got it started and heard a knocking noise, shut it off. Decided to shoot water down some of the tubes from thermostat. Once I shot it down the port side exhaust manifold inlet, I did not see any water come out from anywhere. Probably being stopped by thermostat. Anyway, checked oil again and sure enough engine was getting water in oil. Now at marine shop waiting for 3 weeks until they van touch it. Did you ever find what the knocking was?

Hi , now it's my turn , I have exactly the same problem, water in oil , after replacing the raw water impeller , removed all broken fin in the cooling system, I think when I cleaned and flushed the system, I apparently over flooded the system. Just finish pumping the mix of oil/water , removed all spark plugs , there was water in cylinder 5 and 7 , it came out with the starter , I did it about 10 times, please help let me know if the head gasket was blown ? Tomorrow I will put new oil and a pint of marvel mystery oil and restart the engine Help !!!!!

Hi, what was the cause, did you find out??

I found your post while trying to work out same problem. In my case I I have been told these BB Chevys have a problem with water reverberation which is basically the exhaust sucking sea water back all the way to the heads. Not sure if it is your problem but enquire with those in the know.

Hole in piston wall

I have a similar problem but much worse extensive damage. "Exhaust resonance reversion" read up on that. My rust was so bad I have 3 frozen valves 2 bent pushrods(all on holes #5 &7) water in the oil and now the block is seized up. Always on the port side bank of cylinders for some reason. Im pretty sure my engine is trashed. One fix for the is a mod to your risers...weld a stainless 90 degree pipe to the riser outlet so it will fit inside of the knee and run it 6" down to make it harder for the sea water to backflow into the manifold. There is a video on this. Look up 7.4 rebuild. I don't know what Im going to do...hopeless sorry MF'r. You are not fixed with that pinhole story

If you want to save yourself a whole lot of head ache Sir fit a Heat exchanger to your engine and fill it up with coolant these motors aren't supposed to run sea water through them

Oil cooler