Oil in water outlet and exhaust

[Sandman]

I am very concerned that there is a major issue with my mercruiser 3.0. I only bought the boat at the end of the season so have only had her out 3 times and each time she ran perfectly without issue.
On Friday I decided to winterise the engine and after adding some Quickstor to the fuel I starter the engine to warm it up and get the treated fuel through the system. It was obvious that something was up as it wouldn’t run on all 4 cylinders and there was a lot of black smoke from the exhaust. I let it run for a few minutes to see it it would clear but it didn’t. Water was flowing through the system as I had muff on the water inlet and it was spitting out the warm water as usual.
When I shut it off the ground was covered in black oil where the water had been spit out the engine.
I checked the dip stick and the oil looked fine with no water in it. I also removed the plugs and they looked pretty black.
I am seriously worried I have a cracked block. Is there anything else that could cause this?
One other thing that may or may not be relevant is when I lowered the engine I heard a sharp cracking sound that I didn’t think anything of until now.
Any help would be welcome. Right now I am bricking it that the boat I have had for less than 2 months is needing a new engine.

[mmwjr]

If you raise and lower the drive is the noise still present? You may want to have someone operate the drive trim while you listen to see if your can pinpoint the location of the noise. I thinking you may have a rich fuel issue rather that oil. With no signs of water in the oil or cylinders I suspect the choke may not be opening resulting in a rich mixture which will blacken the plugs are produce black smoke and slick.

If you already flushed the engine with antifreeze I’m not sure if you want to do anything now but you may want to run it and verify the choke is operating properly now so you’ll know if you’re looking at an engine issue or not.

[Sandman]

Thanks, the noise when lowering the outdrive was a single one-off cracking/snapping noise I heard as soon as I pressed the down button. I just ignored it as I assumed it was something freeing up after not being used for a couple of weeks.
I only drained the water from the engine, I didn't fill with anti-freeze so running the engine again isn't a problem.
Is there a way to test if the choke is operating correctly?

[mmwjr]

Remove the flame arrestor so you can see the choke plate on the top of the carburetor. Perform your normal starting sequence and verify the plate is close nearly all the way. Within a few minutes of running the engine the choke plate should rotate to the full open vertical position.