I had this problem last year with my 1.6L 16v engine. I spent two days thrashing my kick to replace the head gasket. After all that work it still had water in the oil. I had the engine pulled out and rebuilt. I had a cracked block. Cost me way too much money, but I love my Kick, had to keep it.
I bought a 1.6 16V from a RIP-OFF yard last year. I thought it was a good deal.....The guy said it ran when it was purchased. There was no oil or water in the motor at all when I looked at it. The radiator was smashed and the oil pan was punctured.....I think it was with a forklift at the yard and then after getting it home and installing it I removed the cap and poured three quarts of oil in it which immediately poured right out the lower radiator hose that I had not yet hooked up! Needless to say I was PISSED. I called the yard and he said to bring it up to him which I did. When he looked at it the first thing he said it that it was not his engine since it did not have his yards stamp on it. Then he said "It should not have oil coming out the radiator hose" DUHHHH!!! Anyway, after getting it back to the garage I took off the valve cover and a freeze plug was missing! It was nowhere to be found in the engine......But the jerk/owner at the junkyard said he saw it run....Yeah right, with no oil or water in it?????
Just for future reference do not EVER deal with Rudy's Truck Parts in Chesapeake, VA!
The guy who rebuilt my engine found the crack only after disassembling the whole engine. Matter of fact they were getting ready to bore the block when they found the crack. I don't think you would see a crack like that without first chemically cleaning the block. It sounds like you need another engine or spring for a rebuild, make sure they pressure check your head and block.