Much overdue update on the project. it was a lot of work and it took me several weekends to finish. i took the engine out for the first time, so i had to learn a lot of things and proceeded slowly. after replacing the failed freeze plug and close inspection of the whole thing, i decided there is no other damage to the engine. running it in the backyard and near 3 hr river trip confirmed that. after carb rebuild it runs better than it did before. no water in oil or any other places it doesn't belong.
the best i can understand what happened, the boat sat a lot unused with water in the block. i only drained water before winter. the brass plug caused galvanic corrosion at the place it was pressed onto the iron block. eventually the corrosion weakened the fit and the plug fell out. that is supported by tons of the rust internally in the vicinity of the freeze plug.
anyone else seen anything like this? from now on, i'm going to drain water after each run.
thank you all for your help!