Either wrong base gasket or water forced up driveshaft due to seal/seals missing/damaged. Also could be incorrect powerhead from a early 70's series as these are the only ways water can escape the mount area
That is sealer for divider. It has been specified in factory service manuals since 1998. Clean off old silicon and apply new black RTV when reassembling.
Installing plugs or finger slows down flywheel rpm. If coils,condensers and points are good you should be able to make fire in a 1/4 turn by passing flywheel magnet past coil