A slightly delayed update from Monday as I needed to talk to Mark about what I found before posting it, and then I was ill for the rest of the week
The engine has been steam cleaned on the inside! It turns out this mayonnaise is quite a good detergent.
The cam bearing journals are still perfect so no bearing damage
At this point I built a pressure testing rig which was derived from my radiator pressure tester. I hooked up a header tank and either looped or blocked off the various water pipes, vacuum filled it, and then pressurised it to 1 bar.
This was the result
There is a crack in #7 exhaust port.
The water pools up in the port when the valves are shut, and drips out of the inlet manifold
When the valves open it pours in to the cylinder and sits on top of the piston
The water in the sump is from the water seeping past the piston rings
So, the left (bank 2) cylinder head is toast, and used heads are pretty much unobtanium. It might be possible to find the crack and weld it, but it would be contaminated with water and soot so welding would be extremely difficult, and not economically viable. Having discussed with Mark we decided the best way ahead is a replacement engine.