The main thing about draining is are you sure that the drain plug opening was not blocked by rust? You should always poke the hole with a stiff wire, thin screwdriver or pick. It is common for rust flakes to clog those drain holes, on both blocks and exhaust manifolds.
What to do?
Well, you can take off the exhaust manifolds, check if they were leaking internally by filling with acetone (careful, flammable) if they are leaking internally, they could be a source of water into a cyl
you can also use the air pressure test of the cooling passages (do a search, several here have posted how to do this) that will tell you if you have leaky head gaskets or cracked heads (it will tell you of the possibility, but you will have to take the intake and heads off to know for sure.
If the manifolds were leaking then replace them, change the oil and run it again. If are still getting water in the oil then do the air pressure test. As long as you don't have a cracked block, you can probably fix this yourself. Could be the intake gasket, intake itself, head gaskets or heads/block.
Seeing as you have a 96 Merc 4.3, you probably have the cursed Merc one piece batwing exhaust manifolds (used 96-99), those things are known to crack internally due to casting problems and put water in the engine. If you find that, you have to convert over to the 2 piece manifold set up, there are conversion kits (check out Barr marine's) that will run you about $1200 parts to get it done. If that's all it is, feel lucky. Merc actually discontinued those due to the problems in casting them.
