Milky oil is the result of water getting into it. You can run a block test on it to verify, but it looks to me like a typical 7M bhg. So I'd be very careful about running that engine until that's fixed or you're going to end up trashing the rod bearings (at least).
Oh, and I'd look around for a non- or at least less-hacked up engine harness. If the one you have is as bad as what you say, you're likely to end up spending a LOT of time chasing down bad connections, no connections, and a whole host of error codes.
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