We have no way of knowing whether or not the motor is running correctly. First thing we do know is that you are running it in a barrel. It was designed to run on a boat, on the lake. What we do not know is if it is running on both cylinders, running too rich, missing, or whatever. If a cylinder is misfiring or not firing, the fuel that would normally be burned goes out the exhaust, contributing to the mess you see. Furthermore, the unburned fuel in the barrel keeps going around and around through the cooling system and out the exhaust. It just keeps adding up and getting worse and worse.
What you are seeing absolutely is exhaust mess. But we can't say what is "normal" because we don't know how well it is running.
Get that thing out of the barrel and on a boat on the lake and give it a good hard run to burn the crud out of the exhaust housing. By then you will also know if it is performing correctly. If it is, you will see a great improvement in the discharges. But there always will be some, as I attempted to explain up above. If it bothers you, you might consider running some 100% Synthetic TC-W3 outboard oil. It will still be discharged, but at least it is bio-degradable.
