So, obviously, my first thought is the head gasket, which I've have done before. PITA, but no big deal and very little load on the car or running time when this happened, so not too worried about the cylinder walls, BUT, what else could this be? I'm looking for a list of other culprits, like the oil cooler seals, which I have never replaced. etc. So please begin listing the "OTHER" areas I need to look. I haven't had to dig into the engine in quite a while so my memory is not fresh when it comes to the old obvious issues. TIA!

 

Turbocharger housing cracked, block cracked, head cracked, blown head gasket. And the two O-rings for the oil cooler housing. Let's hope it's just a blown head gasket or better yet just the o-rings. I recommend a cometic head gasket or copper one. I installed a new head gasket on my 951 10 years ago and I had maybe 20 miles on the engine before I removed the head again. I found that the victor head gasket was already deteriorating around the coolant passages.

 

Look at the gasket when you take the head off and see which cylinder failed. If #4 you are probably looking at a steam block which kept the cylinder from cooling this is usually the culprit in most cases. Consider a steam vent modification from LR.

 

Is it a creamy color mixture that's coming out? I'm looking at a 951 and the owner told me something creamy was coming out of a hose from near the coolant tank reservoir, I'm guessing it's the same place as the OP stated.

Should I walk away from this car or get it as a project? I'm looking to spend 1500 for it non running but does turn over/crank.

 

It probably has a bad head gasket. Depending on why it isn't running is another question, this could be a plethora of issues. If you are a fairly decent backyard mechanic you could take it on as a project, but you will get frustrated at times as these cars are 30 years old so when you tear into one thing 5 more things raise their ugly heads.