I'd like to share a recent experience I had with my '97 850 T-5. I'm just adding this to the collective share of knowledge in the hope that it might help someone.
Early this Spring, I noticed that the temperature gauge on the car was not rising more than a few millimeters above the lower red line. Because I was doing a good bit of traveling, I didn't have the time to do anything about it, so I drove about 1500 miles in this condition. The entire time, the check engine light did not come on and when I put my OBD-II code reader on it, all codes were 0000.
So, there are two possibilities: a temp sensor is defective or the car really is running cold. Thinking about it, I decided that if there was a defective temp sensor, there would have been codes from the OBD-II, so I concluded that the engine really was running cold and I simply replaced the thermostat.
I took the car for a short drive, and the temperature gauge rose halfway up as it normally does. Problem solved.
Then, I checked the oil. Horrors... I had water droplets and rust on the dipstick from about halfway up all the way to the top. Also, there was a bit of that "chocolate mousse" emulsion on the bottom of the dipstick. Conventional wisdom screams, "blown head gasket!" But usually, with a blown head gasket, the car will run hot rather than cold.
Also, the coolant level had not dropped and the water droplets were clear. Could it be that condensation had built up in the oil during the "cold running" period? I immediately changed the oil (it was black and nasty looking even though it only had 2500 miles on it), and I have checked it numerous times since. There has since been no sign of water droplets and the coolant level hasn't dropped.
As an added precaution, I had my mechanic "sniff" the coolant reservoir for hydrocarbons when I took it in for its annual inspection; none were detected. Where I live, Pennsylvania, OBD-II equipped vehicles pass the emissions inspection if no codes are showing, so they don't put any probe into the tailpipe.
Bottom line: The presence of water in your oil and on your dipstick does not automatically mean "blown head gasket." Look at other possibilities before you shell out big bucks.
'97 854 T-5
'85 245 GL