Dealing with the same problem right now. Blew an impeller, overheated the boat and hydrolocked it. We pulled the plugs, there was water in three of them and turned it over.
The shop called me yesterday and said that the compression was all normal so they don't think it blew a head gasket, but there was water in the oil.
I'm still waiting to hear back from them. Once I do I'll post back with an update.
I have a 351, GT-40...