M103 or 104 engines oil in the cooling system is a sign of a leaking headgasket. Very common and since it's the high-pressure oil being close to the coolant- it almost never shows up in the oil.

I did notice you saying you were going to use distilled water? Follow the instructions! Pottable water is required (drinkable). The buffering chemicals in the coolant work better that way than distilled. If you've got horrible tap water- buy a gallon for a $1 at the grocery store.