So today I found that my water wasn't coming out of my engine. I have the engine on a stand and my coolant lines running to a 2gal bucket (the lines are just vinyl tubing). I thought maybe the kink in the line was preventing water from coming out but that didn't really make sense. So now I'm thinking I have a faulty thermostat. Anyways, I noticed shortly after that on the rear passenger side of the engine, I have what I think is oil (but could potentially be water) coming out from the head gasket. Anyone ever see this? And now I'm just wondering if I should pull the whole head back off and replace the gasket.

One more thing to add, when my box came from peachparts, things were in there so that my head gasket was folded over and had a nice crease. My buddy who has rebuilt a few engines said it should be fine, but maybe it also has something to do with my dilemma?