OMC-Ford 2.3 trouble

I just picked up a 1989 Bayliner 1770 bowrider with a Ford 2.3 85 hp and a Cobra 400 sterndrive. The engine runs fine with the muffs and hose. The oil turns milky after 10 minutes so I am inclined to think bad head/gasket. Could it also be a cracked block? I think previous owner let it freeze.
Since I will be tearing into this thing anyway, does anyone have an idea what other engines could be used to power this boat i.e something a little more powerful.Or a good way to squeeze more out of this old Ford?

 

If you put a bigger engine, the drive will need to be re-geared to a 1.6 or 1.5:1 ratio.

 

Gonzo, Thank you for the advice. Any help with what size engine I can go to?

 

I just read your post and remembered seeing a interesting setup years back in a boat that caught my eye, it was a modified "SVO MUSTANG" 2.3 liter Turbo Injected motor putting out a claimed 260HP. I have had some experience with the 2.3 liter Ford motor in the pintos and Mustangs. It was available in several versions including with Carb,Fuel injection and Turbo charged. They actually had a Turbo version in 1979-1980 that was a "Draw Through" using a Holley/Webber 2BBL Carb with 140HP in "Car Emmisions" trim. I had one in my 1980 Mustang and with "SVO" cam it would run with my Buddies 1985 5.0 Mustang. My point being that you can get a substantial increase in power out of that motor and still be reliable.There are alot of "HOP-UP" parts for that motor with using a Turbo also. That could save you some serious $$ by not having to convert everything.

 

Any new information for replacing an omc ford 2.3 with a ford 2.3 turbo?