Something that is supposed to hold water isn't and it's leaking into the cylinders but heck you knew that already. Could be a cracked sleeve, head or block, could be a bad head gasket or maybe monkeying around one of the sleeves moved, don't know if this is a wet sleeve or dry sleeve engine. If it's a wet sleeve it could be leaking at the seals, if it's a dry sleeve it might of moved enough and is preventing the head gasket from sealing. Before I tore it apart again I think I would try spinning it over with the plugs out and see if water comes from all cylinders or only one, an alternative would be to pressurize the cooling system with the plugs out to see if the water is localized. Are you getting any water into the oil? Something else to look at and might help you figure out where it's coming from.
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Today's Featured Article - Women and Tractors - More Views From the Farmer's Wife - by Teri Burkholder. The top ten reasons why the judges wouldn't let you participate in the stock antique tractor pull: Hey, this is stock! It came with that V8 in it! That "R" on my tires stands for "really old" not radial! Blue gas? We thought it was a pretty color! What wire hooked to my throttle?
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