Engine failure, what will I find?

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Hello and sorry for brinding up old topic.
I have a very similar issue with Smart 0.7 engine rebuild. It had a broken piston skirt and was knocking, but otherwise working fine, no smoke and plenty of power.
It was rebuilt recently. Right after rebuild it was working really well, gently drove it around for a few hours. No smoke, plenty of power.
The next day started it and immediately saw a cloud of thick white smoke. Looks like a stem from coolant, but does not dissipate quickly. The smell is weird. Not exactly oil(ish). Maybe because the oil is fresh, still clear.
Compression is identical on all cylinders, liquids are not mixing, no bubbles in coolant, etc.
Removed intake manifold and found a puddle of oil on top of one valve. Others are dry. The liquid looks exactly like oil.
Assumed it's a bad valve seal, or it popped off. Replaced all with new ones, but still same problem: 1/8th inch puddle on top of intake valve, and also 1/4th inch inside the cylinder.

I pulled the head and no visible issue there.
Pulled all pistons - rings are fine.

If it's oil, where is it coming from?
If it's coolant, why so oily and no color?
How did it fail over night? I assume something happened when it was cooling off, or during start, however start was immediate and without any extra noises.
 
It sounds like you have a sticking open fuel injector, this is common if they sit dry off the rail for any significant amount of time.
The next time it runs tap as close to the bottom of each injector with a punch and light hammer taps it might free.
Check the fuel trims, I wouldn't be surprised if it was pulling fuel like crazy when this is happening.
 
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