Where is the oil dip stick tube? Just below the wind shield, water runs down windshield, down firewall and into dipstick tube.
Maybe there is a little crank case pressure (No PVC ?) pushing the dip stick up just enough to relieve pressure then water gets in ? Same with oil fill tube, could rain water get in there?
The rust at the rocker arms makes me think it is from external water source, not anti freeze from cooling system. Don't think it will rust like that from anti-freeze coolant.
Change out oil and filter, run a pint of sea foam in it to clean it up. Put on 100 miles then change oil and filter again.
That water in the oil is probably what is goofing up your roller lifters so they don't pump up and are rattling.
Need to fush out oil system a couple times with thin oil 5w30 and that will clean out the lifters too.
Park inside at night to keep out of the rain, then see if the engine oil stays cleaned up.
One other thing, maybe the previous owner had a 2 block drive back and forth to work, not allowing the engine to warm up and cook the moisture out. So the moisture just kept building up.
Change oil and take her out and run her.
