1989 SN Water in Oil / Wet Plug

You can compression test it in that condition, but putting the distributor back in to drive the oil pump is a good idea (no power to the distributor and no need to worry about TDC etc, it just has to turn the oil pump) and disconnecting the fuel pump suction hose is also a good idea, so that you're not spraying fuel out the discharge line  Also leave the valve covers on for "less mess" 

You mentioned that the ports in the manifold for the exhaust crossover passage are solid or are plugged.

You can see in your photos a lot of silicone was used around the water ports at both ends of your heads.  A little bit to fill in pitted spots around the ports is fine.  Your engine had a LOT of silicone used.  You can see it squeezed out and actually reached the intake ports.   Gasoline vapor will turn silicone into a grease like substance and cause the intake port to leak.   You do not want silicone exposed to the intake Air Fuel Mix.  That is a big No No in the engine world.   Might be why you had water in your #1 cylinder.  Could be the cause of your water in the engine.  

I recognize that being located in South Africa has challenges in cost and availability, but if possible, an upgrade to an aluminum intake manifold would be a nice upgrade in terms of engine performance and weight.  The Edelbrock Performer or Performer RPM intake manifolds are nice options.  Also, the Weiand Stealth Intake manifold is an option.  Fel-Pro intake gasket number 1262 S-3 may be a good choice for the 351W SBF marine application.  I believe that these gaskets already have the exhaust cross-over port blocked.

I don't think some extra RTV caused your problem since it took at least 15 years for the leak to show up and then show no signs of water/rust in the intake port on the head either 

I think this is the time when you decide whether you want to pull the head(s) and see if there's any sign of water.

Greg:

In the USA a machine shop could certainly install a sleeve in that block and you would have a 100% repair.   My question would be why is that cylinder cracked?    If the engine had been bored out and is running larger pistons a crack is more possible but still rare.  Almost never see a stock bore block crack down the cylinder.

Greg, I'll send you a WhatsApp. I sourced a new block in great condition for my engine for a very reasonable price a few years ago through a lmuscle car builder here in Cape Town. There is actually a pretty vibrant muscle car scene here in SA, and Windsor engines do float around locally.

Well, I guess the good news is that you found the problem and maybe you've reached the bottom of the rabbit hole.

Good find, Marine cams were a little more aggressive than the automotive passenger car and truck cam.  These engines had a low RPM top speed, 4,600 RPM I think.  The cam was matched to make best power in that range.In a boat a strong idle is mandatory so cam selection is usually very tame, more like an RV cam for truck use.   All other internal parts should be the same.   For marine use engine builders traditionally will loosen up the Piston to Cylinder wall clearance maybe .0005 or 1/2 thousandth.  They may leave a little more crank and rod clearance but not much.   If you run the automotive engine as is the only thing I would advise it a warm up before any hard use.  The extra clearance marine builders use is to protect the engine against abuse by boat drivers that ignore the common warm up procedures and ignore that the marine engine typically runs colder than the automotive.  140 vs 190*.  

Nice list KENO.  I'm assuming that the long block does not have valve covers.  If, by chance, the long block has valve covers, I would consider keeping the PCM units as the automotive version may not play nice with the exhaust risers and clearance.  What heads are on the long block?  Recent valve job?