Hmmm, first, it really does not look like a 69 model, except for the lower motor pan…But yes, that recirc drool looks like water mix. You have excluded the lower seal as a cause, and it doesn’t appear that water is entering the combustion chambers. Someone has been messing with gaskets probably trying to resolve this issue. Unfortuntely, these engines were known for porous/cracked castings/sleeves when exposed to salt water…
You might want to try pressurizing the cooling system in an effort to pinpoint the problem. The engine sounded kinda rattly also, so I fear there is bearing damage.
Sure hope I am wrong about all of this and you find something simple/easy to repair….