If you had a head gasket leak then there should have been coolant sitting on top of the piston, unless it slowly drained down in to the oil pan from the ring gaps. When you saw the coolant on top of the valve, was the chamber full of coolant? was the valve closed or open? Did a lot of white smoke come out of the exhaust?

If you had a coolant leak from the head gaskets, but the head, head gasket and block look fine, there could be a chance that some one did a head work many years ago and did not changed the studs, hence the clamping force on the gaskets got loose over the years and caused small coolant leak, but I would think that a compression test would show that.
I'm trying to figure out why you had coolant on top of the valve. Take your heads to a good machine shop so that they can check for cracks, also have them measure the head and compare the height to factory specs to see if the heads were resurfaced before.

 

OUCH just reread post 4

 

The coolant on the valve is hard to explain if you're not seeing anything obvious with the motor, but the coolant/oil mix could be as a consequence of a failed oil heat exchanger in the radiator. I've reread this thread and you haven't mentioned it ... have you had the radiator pressure tested to rule that out?

 

Well, he mentioned coolant in #1 and #5 intake port, how is it possible that two heads crack at the same time or develop gasket leak?
When the intake is off is there any way for the coolant to sip into #1 and #5 intake port after taking the water bridge off ?

 

It's possible that two heads could crack or both gaskets go at the same time ... but ... it'd highly likely to be showing some fairly significant symptoms.

When you have the intake off it's a straight shot down the intake ports for any spill, and if you hadn't drained the block it'd be easy to have water flow to #1 & #5 intakes when you took off the water bridge, and had a big slug of coolant splosh out in that area (although I would have expected you'd see coolant in a few other places as well). Is that what happened? Did you drain the block beforehand?

 

The coolant bridge was removed after the intake runners were removed to find the coolant. I have also considered how the aav gets its air source from the rear of the heads which I am guessing is from exhaust pressure. maybe that is how it got to the intake??? I am going to hope to eliminate the guesswork on the heads and take them to a machine shop to have them checked out. I see nothing abnormal at this point.

 

the rear of the heads is the opening that feeds fuel and air to the intake ports for cold start. the cold start regulator has a fuel injection and a port to the intake for metered and filtered air to help run the car on start up. the exhaust has nothing to do with this system. on the euro, the exhaust ports are fed air from an air pump,not found on the US models.

if you have coolent in the intake ports, it had to come in from the aux air port at the idle cold start system. that engine didnt need to be pulled, unless you can confirm a cracked head. also, you cant detect blown or loose head bolts as the will show perfect compression in most cases. however they will fail the exhaust vaport test from the overflow container. (blue chemical test)

it had to spil into the #1 and #5 ports, its just too coincedental. plus, if it was significant, your pistons would be clean.
pistons look normal
head gaskets look normal.

????

you might be chasing your tail on this one.

 

pressure checks missed my oil to water heat exchanger. 1 drop every 10 seconds, fills a 1 quart bucket over night, but wont be detected on most tests unless you are looking closely.

 

This engine has been running rough under load for probably ten months with no obvious reasons why, I threw a few thousand dollars at it which in my mind just makes the car that much better anyway. Once I drove it hard and had milky oil, I had to see what was going on on the inside. Looks like so far I found nothing. I have not been loosing coolant either. Chasing my tail is a very good way of looking at it. I will clean, check heads, re assemble and go from there I guess. I really appreciate everyones input. Need time and money at this point.

 

If your talking about the milky stuff on the oil filler cap, that stuff is normal, its just condensation from gas vapors inside the block that results from combustion gases passing trough the rings (blow by). My 66 air cooled VW would do the same thing, sometimes there was milky stuff like the picture you posted on the oil filler cap.
However, if you saw the milky stuff on the oil dip stick and when you drained the oil there was obvious amount of water in it and you were loosing coolant, then yes I would say you have a problem.

 

I had it on the dipstick, very slight, but when I drained the oil it wasnt really that bad.

 

Hkp7 and Mark ....
Consider the pressure difference of the cooling system and the oil ... about ten to one. That's why it'll be hard to detect a leak with normal radiator testing for water leaks. A better way for this issue, is to pressurise the heat exchanger (not the radiator) to around what it'll see with normal oil pressure, and see if it holds.
The pressure differential is why you'll see engine oil in the coolant mostly ... with little coolant in the oil. Oil will leak to the lower pressure coolant side during engine running, while oil pressure is present, and water will leak to the oil side only when the engine is off and the coolant system is still holding pressure.

 

Heads were fine according to NAPA, new head gaskets and fresh everything else and its almost ready to run.

 

For reasons best known to Dog and Behr it is not unheard of (I'ld venture to suggest that it is common) for the oil/coolant heat exchanger to develop one way leaks - doesn't leak oil into the coolant but does leak coolant into the oil once the engine is hot and not running - oil pressure drops to zero but coolant remains at 15psi.

 

The nice thing about doing head gaskets will be piece-of-mind when driving this car hard.

Injector cleaning is also something to consider right now while its all apart.