Had the identical problem with my 1GM10. The mechanic said that the load exceeded the design parameters and that incomplete combustion occurred causing the smoke and black water. He suggested getting the injector serviced and to polish the fuel. I also added a little cetane and adjusted the valve clearance to spec and can rev up better now but can still stress the engine at above 3300rpm. The water flow was probably a short term thing as it takes a few seconds for the flow to exit the muffler. That's my guess, as long as the overheating signal didn't go off.