450 internal water leak

[bclem]

I recently bought a '80 450SL and it's getting water in the oil. Compression is 180# +/- 3# across the board. No plugs are showing any water contamination. When the engine reaches operating temps there is a good jet of steam coming out the breather hose on the rt vc. There is also "cheese" on the filler cap (none on the rockers) and a little "cheese" and condensation on the dip stick just above the oil level.
It looks like the water pump may have been replaced in the recent past.
The resevoir level will drop about an inch in 20mi of driving.
The car has not overheated since I've owned it.

I was thinking that maybe there was a failure of a water passage seal between the block and timing cover but the steam makes me really suspect something involving head/block combustion or exhaust areas.

Can these motors pop a head gasket in such a way as to cause this without blowing into the cylinder ? The cooling system is not being over pressurized.

I don't mind pulling the motor to do whatever repairs are nescessary but I sure could use some help troubleshooting this so I can focus on the right area.

Thanks for any help or opinions