I drained a little
oil from the pan and there doesn't appear to be in water in there. Shining a light down into the lifter valley I can't see any water in the
oil and when I took the #2 header off water did drip out of there.
Best I can tell, the water is getting in via the intake, head - (which Keith has pressure checked and repaired), or the intake to head seal / gasket. What leads me toward the intake is that there doesn't appear to be water in #1 o #3.