I am in the process of doing an engine swap in my 88 Stingray. While
putting the power sterring pump back on I noticed white oil coming out
of the top. Took the lid off and out poured water and steering fluid.
My first thought was that I had a bad oil cooler. Took it off and
stuck an airhose in the oil side and it held more pressure than I
could hold back with my thumb. Tried the water side and it was the
same. So it looks like that's not the problem.

What else could it be? How could a busted block cause something like
this? Could it? And how in the world am I supposed to get the water
out of the rest of the system? Should I hook everything back up and
add steering fluid and let it flow out the return line until it's all
clear?

I have no way of knowing how long it's been like this. I checked it
when I first saw the boat 3 years ago, but that doesn't tell me much.
I didn't see the boat again until I bought it. Could have broken the
next day for all I know.

Reckon the whole steering system is now shot because of this? I just
put a long block in it and haven't even got to start it yet.

How should I fix this?