It sounds like you have exhaust leaking. Checking your project photos, it looks like your head had AIR, I would pull the plugs and check that they have a copper 'o' ring or other means to seal them from the exhaust pressure. Someone may have just put bolts in the ports.
On the water leak, I think you are right about the stock gasket, make a new one and maybe use some hi-temp RTV.
Tim
