It sounds like a bad head gasket. Perform a compression test to check for lower compression in a cylender. Here is a how to:
https://www.2carpros.com/dia/how_to_check_compression.htm
I wish I had better news, but based on your description, it sounds like a head gasket to me in every way.
Let me know what you find.
Joe
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Thursday, January 14th, 2010 AT 8:16 PM