Yeah I opened it up it and it was definitely water, all the pistons are pretty clean ans shiny. The bolts for tye cover were tightened twice and some were still loose when I opened it.Since you said that water was definitely getting into the exhaust chamber then I would think as each piston went up and down it could introduce water into that cylinder. The water comes in under force from the water pump so I can rationalize this. On the one piston being wet and the others dry, possibly that one was ready to fire (wet) but didn't due to engine timing not ready for that cylinder to fire when you stopped it.
Compression is fine with me. On the water getting into the bearings, that surely would be something that needed to be addressed immediately. I don't know how to address the how to on that problem, never had it. Maybe one of the guys that answered and know how to fix that problem can direct you.
I took off the exhaust cover and had to re-surface it to make it true, it was off at 0.20in warp which is a lot, I made it to 0.002, it will be perfect now. I got a new separation plate and gaskets, will use some kind of gasket maker for high temp, recommende blue 750 sealant for the bolts and cross my fingers that it solves the water problem.
With the water gone I hope the dying in gear at idle will be gone. It should be.
I took off the power head also. It was holding conpression pretty good but wanted to see inside. This motor is almost all brand new now including the lower drive. Better run like it too.