Les,
A lot of sorting out has happened over the life of the thread.
In particular, per oil analysis, the oil is polluted with glycol-free water (not coolant) in a freshwater boat (no salt to also check for in the oil) without an oil cooler (no place where oil and raw water come near each other), and, I think, without any oil in the coolant. Additionally, the boat has a recent history of extended cranking (an opportunity for the raw water pump to push water into the oil), and of cruising without the generator running in a model of vessel reported to have problems with water backing up the generator exhaust while cruising, but is equipped with an exhaust flap for whatever such is worth.
So, the problem has nothing to do with the coolant or coolant loop, and there is no apparent way for the water to have gotten into the system via the raw water loop, but there are a couple of high probability ways by which it could have gotten into the system via transient conditions.
What do you mean by transient conditions? Following sea, etc? After reviewing all the great, though varied advice provided herein, for which I am most grateful, I've been pondering this situation further.
The previous owner took meticulous care of his vessel, employing the same mechanic since the boat was new. I actually met the mechanic and he seemed to know his business. (Sometimes I regret leaving that marina.)
The pre-purchase surveyor started the generator and reported normal operation at the time. And since my wife was not keen on anchoring or mooring away from a marina, the genny had virtually no use. I did try to start it once this past summer while visiting a national park. But apparently due to a weak dedicated battery, it failed to start. That's when I may have cranked it too much.
However, upon our return to our home marina and shorepower, it started readily. I ran it for only a few minutes. And with no further use, about a month or so later, the "mechanic" and I found the oil cafe. To my knowledge, he changed it only once. And as I said, the service manager recommended I change the oil and filter again upon launch and run it for a couple of hours. But I feel the need to check the oil again now and try to get the remaining water, if any, out of the engine immediately.
I must admit that I had no idea that the generator had its own exhaust port, except, of course, that for water egress. I assumed it is tied into the main exhaust. But it appears that, according to my understanding of comments offered herein, it has a dedicated exhaust. Is this correct? When I referred to flaps, I meant on the two mains on the transom. Can anyone tell me where the genny exhaust port is located? I've not seen any other ports with flaps anywhere. Could it be on the transom under the swim platform? If it's there, it's no wonder that water finds its way into the generator.