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Dead-on.. Owned seven 318's over a span of 47 years ... Three of them were pounded hard and experimented on throughout the 80's ... Four of them are still running to this day.. Never had a head gasket failure with any one of the seven ... (and no cracked heads either)

i bet a hundred good-running 70s-80s 318s are out there sitting in rust bucket cars and trucks all around the US .. I have kept all but two trucks working on a rotation of salvage engines for the last 45+ years .. One of the jeeps had its original engine machined but it never got reassembled...

if head gasket issue with no coolant in oil nor vice-versa (compression leak only) , you would see bubbles in the coolant, no? .. And with a functional radiator cap, there should be abnormal blowback into the expansion tank while running, no? .. You are correct, you have a puzzling situation...

good suggestion but need good luck when it comes to getting one to turn out.. I didn't mention it myself because I never was successful way back when, and never bothered to try since .. But yes, if the plug was pulled there would likely be casting sand and crud buildup in there, as I usually...

Having driven, maintained, and owned '69-79 LA-engines in cars and trucks incl M880's/890's, and big-blocks too since the mid-70s, I was initially going to suggest replacing the radiator cap or trying it without cap, but I see you had the cap off when it erupted.. My next thought was the water...