It looks to me like you are going to need a new manifold (or two). Slight rust is common at that location, but you have a water leak or you wouldn't see the white scale and the streaks running down the block.
I would guess that the boat has seen some salt water use (hence the closed cooling) and the cast iron manifolds weren't suited for it. The water is seeping onto the hottest part of the engine and turning to steam which is heating up everything around it and under the motor box.
'96 ProStar 205 SD LT-1
Last edited by Table Rocker; 04-30-2013 at 02:00 PM.