@pb4ugo was absolutely right, nailed it! I blew the head gasket! Not sure why I thought it was the valves, maybe because I know they aren't Toyota, but they are still fine. Great info too about when you have no compression on 2 consecutive cylinders it is likely the gasket, I had not thought of that. And the way this one failed, there was no water in the oil and visa versa, it was directly between cylinders 2 and 3.
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The only problem I saw when I took this apart is likely the reason that the gasket blew. The Intake Valve Stem Seal on cylinder 2 was riding on the valve stem, up and down, no longer stuck to the head at all. This was likely letting a lot of oil into cylinder 2... so I think that would have increased the pressure and blown the gasket? Well, the valve stem seals were non-Toyota, so off they go and 12 new (expensive) Toyota valve stem seals replace them.
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CityRacer has the OEM head gasket for half the price of Toyota right now!
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And here is the shiny new goodness in place
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I quit around dark yesterday and still need to bolt back on the manifolds and accessories, but the new gasket is in and the head is on and torqued, as well as the pushrods and rocker assembly. It's not easy lifting that head straight out over the block and lowering it back into place nice and easy! But the rest will wait till next weekend, had to come back to work for a break, and so I could post on MUD

Ya'll have a great day!