where is the water coming from

[rcb13]

This is on a 2003 75 Hp carb engine. It is a Yamaha power head used in a Mercury. I finally got this motor to run after a long drawn out session trying to find wire color codes. My thanks again to the Boats.net team for the correct info.
I ran the motor on muffs on a stand. It fired right up after about three tries. Here is what I observed;
A. A lot of steam from the prop area.

B. Oil/water mixture leaking at top of shift shaft support on lower side of crankcase, directly below the rectifier/regulator.

C. Oil pressure in range of 85 psi at approx 3000 rpm.

D. Drained oil, appeared to have water in it. Very black in color for new castrol with two minutes run time.

Am I looking at a bad head gasket or is there a history of this problem with this engine?
Thanks in advance for the help
Rob

[boats.net]

Steam out of prop is not uncommon especially if air temp is cool.
May have a bad gasket between powerhead and mid housing causing the water leak.