Looks like the dowel is pressed in, which means the block is set for full flow filtration. With the oil ports plugged, the bearings and upper end are not getting oil properly. It is imperative to connect the two ports - minimum of 1/2" ID hose or tubing - for a block in that configuration, whether or not a full-flow filter is used.
Somewhere I have the factory drawing of the 261 full-flow filter setup... need to do some digging to find it.
Doug
