Chris,
Sounds like a neat find. Any pictures?
It does sound like you might have an engine with a significant problem. There must have been a very good reason for the pushrod to have been removed. I would guess that the vave must have siezed up while the engine was running. Certainly whoever removed the pushrod would have tried to unstick the valve.
Anyway, you could loosen the adjuster on the intake vave for number 1 cylinder (cylinder closest to the water pump) and then rotate the engine with number one plug out, and see if it will draw air in on the intake stroke, and out with the compression stroke. That may be enough to tell if you have a hole in the piston or a broken off valve head. You could also apply compressed air at the spark plug hole and see if it will hold any pressure.
Although you don't want to do it, I would advise taking the head off and give a look see. It is easy to do, and if all is OK, it will just be the cost of a couple of gaskets.
It would also be worth your time to drop the oil pan and check out the lower end. At least you can clean out all the gunk.
Good luck, and let us know what you find out!
Kurt
