Hm - is the gunk semi-solid, like grease rather than oil? It sure looks like it from here. Water+oil usually ends up as a white emulsion (the "mayo" you get when your head gasket's gone in a car engine). What was the rest of the oil in the sump like? Clean, or full of silver bits?
Non-magnetic silver coloured deposits could be:
- Chrome (if yours is a Listard bore - i.e. chromed) - I'd say this was highly unlikely, you could pull the head to confirm, there would be extremely obvious damage to the bore.
- Babbitt material, if you're running Babbitt bearings - pull the big end shell to confirm, it's very unlikely (but not impossible, I guess) to be the little end.
- Something non-metallic and weird.
Scrape/remove some of the gunk, add some petrol to thin it down & see what happens. In a glass container would be ideal. If it turns to a uniform liquid with silvery bits in, try running it through a filter paper to see what you get.
Is your dipper attached & splashing lube onto the main bearing feed tray?
Did you put magic pixie dust in your diesel to make it run for longer on the same calorific content
? [joking of course...]