I've got a '96 CTD. I bought the truck from a small used car dealer in Northern Alabama June 8 and have been trying to figure this thing out since about 3 weeks after the purchase. I'm getting water in the oil. There is NO oil in the water. I have replaced the oil cooler and resealed it a second time to see if maybe it was a bad seal, NOPE! I just pulled the head to check the head gasket and the gasket that is on it is quite new and no signs of damage. The head is at a reputable machine shop being checked. I'll hear something later today I'm sure. If the head is good where would I go next? Aside from a lawyer. I'm already talking to one a little. Any and all tips would be greatly appreciated.

 

Not many places for water to get in really. If the head is good, then the block might have a problem inside with an internal crack or pinhole. With the new gasket, it could be that it just wasn't torqued properly.

 

Not that common to find coolant in the oil since oil pressure is higher than coolant pressure.
Usually it's the other way round.
Usually you can find a trail on the head gasket where leaks have passed.

 

I havent looked up the valve cover of a 5.9l cummins in years but.... typically, there are "freeze plugs" or core plugs under the valve covers of most diesel engines..... check them VERY carefully... I would get the cylinder head hot by using a hot tank washer, then pull it out , install the necessary block off plates and pressurize the cooling system in the cylinder head.
Where I used to work, we used something we called methelyene blue, seems like it was just methanol and machinists blue dye mixed together. It GREAT for finding leaks.
Short of that, you can put food coloring in water, it can work also.