Some of the early Volvo
MD engines which were fitted with a cylinder liner suffered a problem peculiar to them. A small hole develops through the liner exactly opposite the drain cock. Because this hole in the liner is always below the top of the piston it cannot be seen by removing the head
. However a carefully inspection
of the bore with the head
removed usually displays discolouration of the liner above the piston on the drain cock side with the piston at bottom dead centre . There may even be water
droplets n the cylinder wall.
If this is your problem you will need a new liner plus rings and gaskets etc. You might have to search a bit for one of these. If no luck in the USA then maybe worth an email
to these folks.
You might also be able to check for this by removing the drain cock and feeling for the hole with something like an engineer's scriber of small instrument screw driver as it will be opposite the drain cock. I think the hole forms due to some electrolytic problem between cock and liner.