86 4.3L 262 Mercruiser has issues

Ok so a little history, my dad took the boat and paid 2700 to have the engine rebuilt and some other things..

1 year later (not kidding) we got the boat and took it out. Fired up and ran ok, then running at about 75% throttle there is a loud metal on metal noise (only way i know how to decribe) then start losing power. Then a backfire and it dies completely. Oil pressure gauge was pegged to the top, smoke (burnt oil is what it smelled like) rolling out of the air breather. The temp was holding steady at 160. I managed to get it started and slowly toted back to the ramp, it still sounded loud and the temp still held steady at 160. I checked the oil when we got it home and it looks great. Only other relevant info is the power steering pump was low and looked like there was water in it. Would that cause the problem? Any help on where to start would be great. I will check compression and report that as soon as I can.

Thanks,
Gabe

Re: 86 4.3L 262 Mercruiser has issues

what is the fuel condition??

was the carb rebuilt along with the engine??

tune-up stuff/fuel filters??