Pull off the drain plug fitting (not just the plug itself) and check for spongy, crapped-up transom core around the drain hole -- DAMHIKT

Take a look at the block-to-manifold and mainfold-to-riser seams -- is rust showing there? If so, the engine may be getting water into the exhaust ports via rusted-out risers or manifold. Replacing the cast iron isn't hard, but it is spendy. Worst case is you have water collecting in the exhaust valve pockets; then you have real problems.