pre 97 honda 2hp 4 stroke water pump question

[stevensmithnc]

I understand that this engines exhaust is "water" cooled. What exactly does this mean. i have had it apart and resealed everything and what not. I have water coming from the peehole but i also had it coming from the exhaust itself. Upon inspection there is water leaking through a corroded hole from the water cavities into the exhaust. My thoughts are its just corroded and leaking into there. I am curious if a little is supposed to go through. Maybe a small hole that is now corroded into a pretty big one. If you remove the small exhaust pipe the water will flow out of where it bolts on. not from the engine but from where the pipe bolts on. I guess my question is. Is any water supposed to travel through the exhaust or is it supposed to all come out of the pee hole.?