There have been instances where the low pressure pump leaks fuel into the oil
Probably more instances where the float in the high pressure pump sticks open or is out of specs and allows the fuel run through the overflow tube into the oil
Art

What is No #3 wet with fuel or water? put a match to it and see if it burns. If you can work that out it would be easier to diagnose

You may have a sticky injector, that would account for fuel in your oil, wet plug and missing if it is sticking open. The only correlation between the thermostat and fuel is operating temp, a stuck open thermostat would keep the operating temp down and increase the temp sensor signal voltage say from .9 of a volt to 1.8 volts and the engine would be running a bit richer.

I cant see how the engine would hydro lock when there would be no water in it to get into the cyls when first cranking.

Drained the oil out and I'm confident it's got water in it. Looked like chocolate milk. From what I've read, when fuel gets mixed in with the oil, it turns darker, not lighter. Looks like I'll be tearing it down over the summer and going through this crap again. Hard to fathom both engines crapping out within 9 months of ownership. I'm pretty well disgusted.

Thats the problem with buying used 15 year old motors (of any make).

You never know how the PO has treated or maintained them.

Ad said '' Maintained with an open checkbook ''. That should have been a huge red flag right there!
Internal Anodes were long gone when I started working on it in the fall. Feel like that had to be a contributing factor in the corrosion problems. It is what it is at this point. Fix it and move on.

Started tinkering with it again yesterday. Old thermostat was stuck open. Installed a new one. Drained the milky oil and filled with fresh. Engine idling on the hose, it's only running on 3 cylinders. Pulled plug caps off 1 at a time while idling and engine shut off after each one except #3. No change at all when I pulled the cap off #3, continued to idle rough. Swapped plugs and #3 still not firing. Swapped coils, no fire on #3. Swapped injectors, again #3 not firing. Checked the new oil and it's turned milky after maybe 30 minutes of idling on the hose.
I want to cover all the bases before I start tearing it down.
Milky oil and no combustion on #3. I've eliminated the spark plug, coil and injector. Thermostat is new. Shouldn't be the oil cooler as that dumps oil in the water, not water in the oil from my understanding. I didn't notice any oil in the discharged water on the hose and I never saw an oil sheen on the water when I had it splashed a few weeks ago. That wouldn't cause #3 to not fire anyway.

My guess is I'm getting cooling water into the combustion chamber around #3 somewhere. Either a crack in the head / block, head gasket leak, or hole corroded through the water jacket into the valve port like what occurred on the starboard engine. I don't think it's the air cooler on the back of the intake. If water was leaking into the intake there, I'd guess it would settle to the bottom and get sucked into #4. I feel like I've about eliminated everything simple with regards to no fire on #3. Whatever is causing the milky oil is likely causing #3 not to fire. Is that a pretty safe bet given what I've ruled out? Anything else I should try or check before I get busy tearing it down?

A bad oil cooler can let water in the oil,
If you have not opened it up, you should.
I was amazed at the condition/ blockage of mine.

Pulled oil cooler yesterday. Lot of corrossion but the ports were open and the o-rings and seals all appeared to be intact.
Removed the intake and found clean water pooled up in the intake port of #3. Upper intake valve stem rusted. Found a dab of water pooled up in #4.
Anybody want to bet the head is corroded to the point there's a hole through the water jacket into the exhaust valve port?
Pulling the power unit off tonight and will separate the head from the block and have a look. Going to rename my boat the albatross.