3304DI water in oil

Yea, could be any of those, liners get pin holes from electrolysis, oil cooler leaking would show up oil in the coolant due to higher pressure, water pump weep hole plugged will push coolant in oil, cracked head. Bad turbo sends oil into intake tube, damaged shaft and bearings cause fins to rub. Sounds like an out of frame rebuild is due.

totally agree with Rome, way to many issues here to guess at, a thorough rebuild is due otherwise you will be constantly going in circles...

some turbos are liquid and oil cooled. but as others have said strip it down measure everything. sounds like its had a hard life. oh the "fun" when you buy something second-hand.you often buy someone else's problems. its the nature of the beast.

it might be a simple bad head gasket it might not. magnaflux or flaw check the head and block flaw check(dye check) you can do yourself magna flux is a engine shop job unless you have the gear.

You need to be able to pressurize the cooling system then
Pull the cover off the timing housing in front of the water pump look to see signs of water trailing behind the gear
If not then the lower oil pan to see the bottom of the liners
Does it have an oil cooler ?
You should be ale to determine were the water is coming from with out completely dissembling it

Greg

Thanks everybody. I'll update with progress.

gregs idea is a good one i just might show where it leaks. note some leaks only show up when things are at operating temp.

Well, it ooks like I'm in for a total engine rebuild. The machine was a military machine and only has 3600 original hours. It looks it too. No wear on anything. It's the tightest 518 i've ever seen but something happened to the engine. I took the pan down and found a bunch of thin wrinkled up metal pieces sucked fast to the oil sump screen. I have no idea what they might be. They are steel.
Tranny oil looks good and just has the usual fine metal filings in the bottom of the filter and the main case. Like metal flake paint. It seems like normal wear or maybe break in wear. I did find some small pepper like soft crunchies in the very bottom of the filter housing. I'm guessing shifting clutch material but I think that's normal for a low hour machine. Let me know what you think, Randy

Well, I got the engine torn down and it's bad. Bearings are all bad. The mains were spinning inside the block and actually grooved the main caps. I hope the block can be saved. They do make oversized bearings for that right? Even the pistons are sctratched up. The weird part is that the engine was running. I will have to get the injector pump inspected as well I'm assuming. Bummer.