1937 85hp cylinder sleeve possibly leaking water into the pan?

[snappydon]

Last spring I posted about my '37 85hp having water in the oil after sitting all winter.


Finally was able to mount the engine stand adaptor and get the pan off.


I didn't find any evidence of freeze cracks anywhere. But I did find a spot of rust and a small rust trail leading into the pan at what appears to me to be a cylinder sleeve between #2 and the center main bearing pedestal.


Am I correct in thinking this is a sleeved block?


Opinions please! Fixes?