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Are you sure it is a 1956 unit? I’m asking because 1955 powerheads/exhaust housings were a little different, and you can not mix/match 55 and prior with 56 and later years…Post some pictures when you pull the powerhead…
Like others have said, and you have discovered, the water pouring out is most likely due to the bottom head welch plug falling out, which short circuits the water path out of the normal relief on the exhaust housing.
Post a picture of just where the other minor leak is also.
And yes, burned paint is normal on the older 5.5hp exhaust covers. This area was not water cooled back then, so normally gets pretty hot….