Well that sucks... sorry to hear of your troubles. I have used Cometic's many times, never a leak. I have even re-used Cometic's several times on my own engine, no leaks. I usually put them on dry the first time, and use copper coat when re-using them again. I have used Hylamar before also, but it is hard to get a nice thin even film, and the spray tip clogs and is hard to use the second or third time. The copper coat covers nicely more like paint, seems to work just fine, that is what I use now. I have built a few engines with BBM blocks, I remember someone having an issue with water leaking into the lifter bores. I pressure tested them before sending them to the machine shop. One even had some porosity showing in the lifter bores, but they didn't leak. I think one fix if they did leak was to install lifter bore bushings. I almost think you had that done on yours didn't you? If so that should rule that out. I think you are on the right track though, pressure test it and see where it is coming from. There is also the oil passages coming from the #2 and #4 cam journal, up to the decks for rocker oiling, that goes through the water jacket and can leak, usually on old pitted blocks, I can't imagine that being the case on a new block but you have to check everything I guess, one never knows where a pinhole can be hiding, where you can't see it...
