Mercruiser 350 w/ water vapor/steam in valve cover

my 5.7 merc has some steam or water vapor that is coming out of the valvecover breathers that run up to the carb/spark arrester...killing my top end speed...spark plugs all look good, motor still runs fine except at wide open when the moisture collects on the arrester and gets sucked into the carb, oil in pan is still clean???? any ideas? head gasket? I took off the valve covers and there was some "peanut butter" in the upper ends...condensation? cleaned it all out and gonna run it and see what happens. but I am still getting some steam in the driveway test.

I'm hoping for the best.