Ok, I'm still not following you here... it was submerged and water got into the cylinder's hydrolocking the engine (but not while it was running, correct?). You took it to a shop and they diassembled the engine, or you disassembled the engine yourself? Who disassembled the engine and why? Simply getting water inside the engine does not warrant taking the engine out and apart, so why was it disassembled? Was it running when it took on water and became hydrolocked?
Who re-assembled the engine? Someone put diesel in the crankcase for winter storage? That's not necessary at all and shouldn't be done IMHO! How is it that there is diesel in the crankcase and now water in the crankcase also if the engine was cleaned out when it was disassembled and hasn't been run since?
There is a difference between hydrolocking the engine, where water get's into a cylinder and prevents the piston from going to top dead center, and getting water into the crankcase mixing into the engine oil (which can happen from the intercooler leaking as well as submerging the engine in water). But yes if you had water in the oil then both the oil and oil filter need to be changed. Obviously you also have diesel in the oil along with the water so it all needs to be sucked out as much as possible!
What I'm most concerned about is did somebody run it with diesel in the crankcase or was the water left in there from the previous submerging/disassembly/reassembly? You shouldn't be running the engine with diesel in the crankcase, and all water contaminated oil should have been cleaned out when the engine was disassembled, thus I'm confused where and when the water in the engine came from....
1st things 1st, suck everything out of the crankcase and change the engine oil filter then refill the crankcase with the correct engine oil (I use BRP's brand oil for 4TEC Supercharged engines from my local SeaDoo dealership, some people though like the Rotella 15w40 engine oil to each their own IMHO). Fill it with fresh oil to the middle of the bend in the dipstick, NOT to the top of the bend! Then back it into some water at a boatramp (preferrably when there's not much activity going on at the ramp... I wouldn't do this on the 4th of July for instance!) and with it still on the trailer but in the water go ahead and start it and let it run with the seats off and make sure no water is coming in to the hull. Stop and check engine oil level, make sure it isn't "making oil" or turning the oil milky.
Was the reason for it sinking last year taken care of?
If everything looks good at the boat ramp running it on trailer then go ahead put the seats back on and release it from the trailer and ride it near the ramp for a little bit, stopping back at the boat ramp every 10-15 minutes to check inside the hull for leaks and check the engine oil again. If after a check or two everything is staying stable (and fairly dry inside the hull) then you're probably ok to go.
Finally consider installing an automatic electric bilge pump with the automatic lead hooked directly to your battery (with inline fuse of course) so that it's always in auto mode, you can put a manual rocker switch in the glove compartment for manual override of the auto mode if you like... point is, if it takes on water for ANY reason at all the electric bilge pump will start pumping it out over the side (I put my thru-hull fitting for the electric bilge pump under the rear grab handle on the left side behind the rear seat). Takes about $50-$60 and 2-3 hours to do this job, saves TONNES of headache and expense later on.
- Michael