Water in oil in Mercruiser 120

[68 Swinger]

I have a 1968 Glastron Swinger with a Mercruiser 120 and the GM 153 Engine. Last year I was getting water in the oil and it was misfiring. since then i have replaced the head gasket, resurfaced the head, valves worked on, new manifold gasket, new point and spark plugs. after timing and adjusting it is running like a champ besides the fact the shift shaft washer fell out when replacing the impleller. :facepalm:

now my issue it that i am still getting water in the oil. my thought is the lower exhaust bellows. as you can see in the pictures the bellows are wrapped and zip tied (not by me) i am getting hot water spraying out of around the shift shaft and the prop exhaust. obviously it needs to be replaced but could this be the cause of water in the oil?

Thanks