Engine Failure... what could be the problem

Durring the main event on Friday night, I had lost power. The crew and I noticed the odd bank was covered in oil.(note: there are 2 breathers on the valve cover for this bank) The engine will turn over easily. The spark plug on #5 is beaten to hell. The oil level raises when we added water to the radiator. Water was added to the radiator because it was full at the beginning of the race but was empty after following the failure. It was thought that maybe we lost the radiator fluid during contact on the track. The radiator is not leaking but the oil level did raise with water added to the radiator. We also noticed there was a water/oil mixture leaking from the rear of the block. Unknown where exactly the leak is comming from. All the cylinders are dry. No water or oil was found in them. This is a chevy 350 block .030 over (355) with stock heads 885 cast. Also noted was the rocker arm for the #5 cylinder is not inline with the others. It appears to be sitting at a slight angle. What could cause a failure that would allow water into the oil, leak from the rear of the block, cause the rocker arm to move, beat the hell out of a spark plug and leave cylinders dry? We initially though we had broken out camshaft but the rotor turns while cranking the engine.  

do you see any cracks in the lifter valley?  

That motor is junk. You've got water in the oil, which means a head is cracked. Time for a complete teardown and rebuild. Plan on needing new heads, pistons, and possibly a crank unless if there's any bearing damage. At the least I'm betting the crank will have ot be turned down to clean up the journals.

Sounds like you had either a rocker arm or lifter failure on that number five cylinder.