Oil Milk Help

I have a 79 MercCruiser 140, bought from a car dealer who got it from an auction. I didnt see the blown soft plug, Im a car guy in Buffalo, changed engines and trans, even shimmed my 3:73 in my car, dont try it at home, but i didnt know i needed water to start the boat?!, yekes, dont think i overheated though, no apparent sign like engine seazing up or getting unstable when i ran it without water for approx 2 min. Aanyway. I replaced the water pump, and what was left of the impeller learning my lession about boats, outdrives and the fresh water system. Went out more than a few times before noticing the oil was getting milky, Water i said. But from where, I dont know where to start. Should i disamble the head, manifold to look for cracks in the block or, a head gaskest, or possably the risers or manifold? I DO notice a Buggery like slug when i take off my oil cover by the valves. I flushed the engine 3 times with regular oil and its still there. The engine runs very good and its only been in fresh water all its life it looks like. When i lift the engine compartment open, milky oil splashes out a little around the loose PVC hose, from the valves back to the carb for exhaust i think, the one that screamed on my old Chevy 350. Need help with this one, any help, the internet has never let me down, so far

Thanks, walleye season is comming quick.

 

http://www.boatdesign.net/forums/showthread.php?t=13230