just picked up a 1987 camaro with a v8 305 with tpi. problem is, i tried filling the radiator up, and instead the engine filled up with water. i didnt realize it until it started leaking out from under the valve covers on both sides. previous owner said it started knocking recently, and im pretty sure this is why.
when i drained the oil, the fluids were all nicely seperated. green antifreeze came out first, then the water i was putting in, then finally the chocolate milk oil.

i took the intake off, but cant seem to find any cracks in the lifter valley. (which was also filled with chocolate milk oil/water)

im assuming the block is cracked, altho could it be a cracked head or bad head gasket? if never really seen something like this before

 

You need to pull the heads, have them inspected and check the condition of the heads gaskets.

 

The whole thing needs to come apart. Don't expect to get much usable out of it.

 

Sounds like a rod went through the side of a cyl.

If so, throw everything below the head gasket in the trash except for the roller lifter apparatus, and start over with a short block from a 87-2000 350 out of a Caprice or truck.