I pulled the heads off looking for the source of all the coolant in my oil. On the passenger side head, right by cylinder 2 I found a big gouge in the head. What's this passage for in the head and is there any way to repair this?

 

Thats a coolant passage. Hopefully thats not where your problem is coming from. A machine shop could fix that up if it was a problem though.

 

Is it worth my while to get it fixed? The exact problem I'm having is coolant in the oil. There's no smoke, there's no oil in the coolant, or gas in the oil or anything else. It only happens when the engine is running. I changed the oil and let it sit for two weeks and there was very little coolant in the oil. Comparitively, when I changed the oil and ran the engine for 5 or so minutes there was a lot of coolant in the oil.

When I put the heads on the first time I reused the stock head bolts, and I didn't clean them or chase the threads in the block. I also didn't have very much thread sealer so I used it very sparsely... When I took out the head bolts a lot of them had coolant all the way up to the bolt head. So I'm hoping the real problem was multiple leaking head bolts.

Does anyone else have any ideas/opinions?

My plan is to clean up all the surfaces, bolt down the heads using my new arp studs and flush the oil system until only clean oil comes out. Then, fill the coolant system and run the electric water pump and see if coolant still finds its way to the oil.

 

Well I cleaned up the block and chased all the threads. Then I checked it for flatness. The block is almost perfectly flat. There are two 0.002" dips around a head bolt, but they're not very wide and they don't run very long. The heads are perfectly flat. So I don't think either of them need to be resurfaced

The threads were filled with crap, quite a few of them needed a lot of torque to get the thread chaser all the way down. I think that could've caused the head to not seal right and leak coolant into the lifter valley.