Best thread sealant for exhaust studs into water jacket

If the threads are shot you're asking the sealant to do more than it was designed to. I'd suggest drilling it out and tapping for the next size up fastener. I'm not a fan of thread repairs in this application but usually going up to 5/16 vs 1/4 won't negatively affect anything.
I had that problem on SBM head many years ago, when I was a machinist. I drilled it out to a pipe tap-drill size. I don't remember the size, maybe 1/4" NTP? After tapping, I coated the threads with red loctite, and screwed in a square-headed steel pipe plug, ground off the square boss, and redrilled and tapped for the original size stud. I then installed a new stud, and never had another problem with sealing there.