etc.

Water vapors will find the highst point of the valve covers. So your pic is fairly common. However, clean it out and start looking every oil change.

ShrimpMan

Alright guys I have an update, and its not looking good.

Yesterday:
I swapped out the radiator and burped the system. Topped off the radiator and reservoir. Shut the truck down for the day.

Today:
Opened the radiator cap and the level was low. Topped it off with distilled water. Started it up, and some white smoke is present in the exhaust - nothing too major but noticeable. I decided to go for a test drive, and the truck seemed to struggle and run pretty rough - until it was heated up.

When it was heated up all the way (temp gauge slightly below half way), the truck seemed to run much smoother. I stopped to check the exhaust - NO SMOKE anymore...
I popped the hood and noticed a very small amount of smoke coming from between the engine and the firewall - am not sure where that is coming from, but it is barely visible. I checked the engine oil - it looks a little darkish/lightish brown in color. Damn.

These findings, in addition to the boogery goo on the inside of my oil cap, leads me to believe either A) My head gasket is leaking or B) One or both of my heads are cracked.

Any thoughts on where I should go from here? I am thinking a compression/leakdown test is the way to determine what the problem is. Then again, since it seems to really be an issue with the HG/Heads, then should I even waste the money? Maybe I should just put that towards a new (used) engine and installation...

Damn this is really disappointing.

Texas_Ace

Compression test/leakdown are not a bad idea along with a cooling system pressure test as well.

digitalracer

Autozone rents a tool called a block tester. P/N 27145 and corresponding test fluid P/N 25739. It is essentially a tube with a rubber cone on one end you push into the filler neck of the radiator. You fill the tube with the test fluid, hold the rubber cone in the rad and start the engine. You then use a rubber pump ball and pull air out of the radiator and thru the test fluid. If you have a bad head gasket/cracked head/ cracked block, exhaust gasses will be in the cooling system. These exhaust gasses will be pulled thru the test fluid and change the color of the fluid. pretty simple just follow the instructions. Just an idea of a "free" check you could do to help verify a bad gasket.

mudpunisher

looks pretty normal to me, i work at a ford dealership here and see it quite frequently. usually a sign of infrequent short drives where the condensation isnt boiled off all the way( mostly on Town Car's and Grand Marquis', go figure...). but like stated most part stores will rent those tools for free so its worth looking at for peace of mind. and be happy, you paid less for your 97 than i did for my 85 even before the 500 refund.