So when I tore it down I found two freeze plugs in the head had popped, which was a good sign because that is one possible explanation for water in the oil pan.
I got the new head from krzyabncanuck and a new set of gaskets from Toyota. I put it back together and filled it up with water to see if any water was finding its way to the oil pan (before I put actual oil and coolant in it). During that test I discovered that the thermostat housing (water outlet) was cracked. I ordered a new one and just got it, so I plan to put it on and try again tomorrow.
The good news is, during my test, no water found its way to the oil pan. Of course that was with a cold block and non-pressurized cooling system. The only real way to tell is after the engine runs and is warmed up.
I'll let you know tomorrow!
Did you get things up and running?
