[Excaliber]

The picture is not clear enough for me to determine if the gasket is blown or not. The "residue" left of the gasket/block surface does really tell me much. There will be some residue left on these surfaces after running the engine and tearing down.

Clearly the water is getting in there!! I'd have the head checked out by a machine shop looking for possible cracks. You might not be able to "see" them, the machine shop may have to use a special process to find them/it.

Cheaper alternative: Assume it IS the head gasket. Use a new one, assemble correctly and try it again!