I know very little about the 261, but most inline 6 OHV engines were prone to cracking the block behind the push rods. Here in Texas, it was common to put in antifreeze when we thought we needed it. And occasionally a cold front sneaked up on us, and it didn't take a very hard freeze to crack a block. Pressurize the the radiator and see if water oozes out of the side of the block. However, if you are lucky, the rocker arm area drains into the side. Possibly there was an oil filler left open and it rained in it.
