How long has this engine been sitting without being run on the road? It could just be that you have gummed up rings. That would account for all of the blow by.
If it were mine, I would (as per Hotrod Lincoln's recommendation for un-gunking engines) change the oil and add 2 quarts of diesel fuel so that the dipstick shows 2 quarts over full, and run the engine above idle speed for 20 minutes. DON'T DRIVE IT! Then drain the oil and refill with fresh oil and see if it improves.
