if this is the motor that had no compression in #3, you have work to do.
what caused the loss of compression? the adjustable lifters look suspicious, the adjusters are cranked all the way down? check for #3 valves to be seating with clearance.
take a look down the distributor hole, it looks like the water was going down there in the picture, but cannot tell for sure. water jackets do crack on the valve chamber side too.
get a decent straight edge and check the head and block, something looks like the gasket wasn't sealing #3 in center but, if so I would expect to see water in the bore and rust.
J