262 Leaking Coolant.....

Likely just a head gasket, but these engines are prone to cracked heads. Most of the time the cracks aren't deep enough to hurt anything. The good thing is you'll have the head off so have it checked anyway.

I talked with Bill at Sandy Lake and he makes it sound like the water passage in the rear of the block is a common problem as close as it is to the cylinder. He told me about one tractor he changed the head gasket several times and on the last one he reinforced that hole with a piece of copper tubing. He hadn't seen it back after he did that. The other problem of course is the dropped sleeves Hurst pointed out. The flange on the sleeves is too narrow. If the counter bore in the block starts to rust, the sleeve drops and the gasket goes. He told me that he has double stacked fire rings to keep from having to pull the sleeves and have the block properly machined. My 262 had the low sleeve problem. The O.E. spec is flush + or - .002. Some of the more experienced guys say it really needs to be .002 above which I'm inclined to agree with.

try moroso ceramic block sealer you have to drain it and use it with water as mentioned above I saw that the local parts plus dealer had it in stock dad used it in his 39 b that was getting water in the oil tried it and it cured the problem its now 10 years later and still no water

Knowing what it costs to fix one correctly (gulp) I'd be willing to give the mechanic in a can a shot at it too. I think I've heard what Greg is talking about called "Liquid Glass".