I was very happy with the engine. I was driving it 85 mph (137 km/h) without a sweat for the last 2 years. I had great oil pressure, the camshaft appears to be in great condition, the bearing surface look great, the rocker ball posts look OK.
I stumbled onto this because the temperature gauge was going towards 90C which wasn't happening before. And it was doing so only when stopped at lights. I thought that a 50 year old car without a coolant expansion system needs more frequent coolant level check. After 2 checks where I had to add 2 quarts each I opened the valve cover cap and pulled the dip stick to see the dreaded orange foam. That's when I put the car in the ICU and started working on it.
All the valves appear to have no leaks, the ding that Tyler is concerned about doesn't have any "out" anywhere else in other cavities. I'm not dismissing it, I am trying to find a shop that can fill that ding and the cavity if needed plus do a compression check. The only "annoying" problem that I had was a rocker noise that I am hoping to go away after inspecting all springs/valves.
I think that heated coolant got up into that corroded cavern, turned into steam since it had nowhere to go, corroded the cavity further and found it's way into the closest cylinder with the help of the ding. The gasket supports this theory, it is discolored at that bridge.
Sometimes I am inclined to put a new head gasket, put it back together and see if the problem goes away.
$9,000 will threaten my married life, I would have to wait for my Christmas and my birthday.