If it didn't come past the head gasket or intake gasket, then the block may be cracked, and coolant is coming up between the block and sleeve...I had 3 cylinders do that After I rebuilt mine, 2 on one side, 1 on the other.
I got another block and am in the rebuild process again. Yay.

 

If you can make it run until coolant pressure builds, shut it down and remove a spark plug from one of the cylinders with coolant and look inside with a cheap USB boroscope attached to your smart phone or tablet device. You should see bubbles of coolant entering the chamber and that will confirm what Sixpack said.

 

You need to pressure test the block hot with the heads off using block off plates, while hot. Similar to this . How to do that? Water pump & block off plates installed, water pump inlet blocked using hose and plug. Install hose fittings in block drain ports on each side, connect one side to small coolant line on another car, run other side to expansion tank fitting on other car. Use atf hose ( rated for the temp and pressure). Start the other car and bring it to temperature, voila you have block pressurized at operating temperature. Also, good engine machine shop should be able to test it similarly.

 

A little update on my progress: I realize now that after reinstalling everything (with head gasket, valley pan gasket, etc.), it was not coolant that was burning, but oil. When I pulled the plugs there was no coolant in them this time. And though it seemed like the smoke was white, it was also at night and could have been oil burning, not coolant. So I ran a compression test (dry only so far), and found the following:

Firewall
1: 150 5: 150
2: 145 6:120
3: 150 7: 130
4: 145 8: 145
Front of Vehicle

I tore it down to the lower intake again, and torqued all the bolts to make sure everything was snug and the valley pan gasket was sufficiently compressed/sealing, then reassembled. It started up ~alright~, but was still spewing smoke out the exhaust, and ran quite rough. It did not smell sweet, so I think it was just oil burning. I let it run for a little while to make sure it wasn't just from spillage somewhere, but it did not get better. Also it is much smokier when under load than at idle (as is probably expected).

So, I think what has happened (overall) is that the hydrolock when rebuilt the first time was due to the crap job I did applying RTV to the valley pan gasket, which caused leaks on the air intake stroke, pulling coolant in from neighboring coolant ports. After again replacing the valley pan gasket (round 2), the coolant was sealed up so no more leaking into the cylinders, but some kind of damage was done that is now causing oil to leak into the cylinders--either I blew out a ring, or damaged a valve seal.

If that is the case, how do I determine where the leak is coming from? Does the compression test mean that cylinders 6 and 7 are both leaking?

Any other test I should do to diagnose/troubleshoot?

 

If you previously truly hydro locked the engine, then something had to give, bent or broken, as you cannot compress a liquid.
I would disassemble the engine and start measuring, and looking for bent or broken parts.
Hydro locking is usually catastrophic failure, and you should have a bad misfire from affected cylinder(s).

 

Hydrolocked is only possible on compression stroke, so since the valves would be closed on that stroke highly improbably you damaged a valve. Oil ring is below the two compression rings, also improbably damaged.

I would recommend looking at the plugs carefully to determine which cylinders are burning the oil. If you have the intake off and the oil is coming from the valve guides you would be able to see it on the backside of the intake valves, similar on th exhaust valves if the manifolds are off. If it was intake gasket you could see the residue in the intake ports. You could also use a borescope to look in the cylinders to see which one is oily. Of course with heads off you should be able to see - and heads have to come off to repair.

Good luck, and let us know what you find.

 

Well, it's not looking good . . . When I took off the head on the driver's side where the compression was lowest, I saw that one piston was not rising as high as it should. Dropped the sump pan, and could clearly see the bent rod. And to make matters worse, on the bottom of that cylinder, it hit the side wall and cracked the cylinder. The crack only comes up the wall about a half inch--well below the lowest piston ring. Would it be crazy to try to replace the piston? Or is my new V7 officially a paperweight?

 

I think you found the source of your oil burn. Never seen this before, how did you turn the crank to bend the rod?

 

I don't know if you'll get away with that sleeve or not.
But, all the pistons and rods out of my 4.0 are in good shape.
You can have them all if you want them.

 

Wow, that's really generous. Yeah, I'll take them! They'll fit my 2001, then?