Actually an intake leak on these, is likely to put water right into the cam valley not into a cylinder. So that water would show up in the oil but not a cylinder. The only place there is a water passage on the intake manifold is right in the front, under and on either side of the thermostat housing. Normally water gets pumped into the block by the front circulating pump, then flows up to the cyl heads and finally out the front water ports into the intake manifold water passage, then if the water is hot enough the thermostat allows it to exit via the exhaust system.
If you have a leaky head gasket it is not that bad of a job, that looks like a nice original engine that's never been apart judging by the amount of undisturbed V/P red paint on it. If its a fresh water used engine likely everything will come apart. I did a similar job on mine 3 years ago, I had blown HGs that was likely from a past overheat. And I had the same symptoms, rough running, water in a cyl, tested exhaust, exhaust was not leaking. Did a few tests and found that I had exhaust gas leaking into the cooling water. If I checked for water in a cyl right after shutting it off there was none but if the engine sat for a while and cooled off then water would seep into cyl #2, and there was just a trace of it in cyl #1. I used my De Walt electric impact gun to take it apart, salt water usage but all the bolts came out and none broke.
I took the cyl heads to a machine shop to get checked out. The machinist felt that I should replace them because the center cyls had cracks in the exhaust seat area and the cooling passages had been eroded by years of raw water cooling in salt water. So I installed a set of remanufactured 4.3 cyl heads with Fel/Pro marine gaskets. I also replaced the cyl head bolts because the originals were too rusted to use. One tip I can offer is get a thread chaser, you will need to clean out the bolt holes for the cyl head bolts in the block, they tend to get crud in them and you want the torque reading on them to be as accurate as possible. Not a bad job all in all, can be done with the engine still in the boat....
For me the hardest part was getting the intake off, the intake gaskets were baked on like kryptonite, perhaps because of the overheat 3 years before the HGs blew. That and re-surfacing the sealing surfaces of the intake, in retrospect it would have been easier to have the machine shop do it. Keep the engine clean, keep the parts organized and take pix before taking things apart...
In your case I'd line up a good machine shop if you are going to do this, you might just need to have the cyl heads done (valve job, check valve guides and replace valve seals) and install with new marine head gaskets. These engines are very simple to take apart and put back together and the parts are cheap by any modern standard.
