I'm no expert but I had a MD17 for 5yrs( still do, just not in the boat) which was raw water cooled. I believe your test would work. I think from the input to the manifold water then circulates around the cylinders before leaving via the exhaust
. You probably have plugged channels thru block. You will probably need to disassemble it.
BtW I would still have this engine if I lived closer to a volvo dealer as it was over 20yrs old and starting to get questionable for cruising remote
locations it was easier to replace (new volvo D2-40)than overhaul
here in Cayman where costs are high and quality ????