e34 5 series yellow sludge in rocker cover

[phillnight]

Help please, I have a 1994 E34 520I with single VANOS, my coolant level started to drop i didnt think much of it but when i went to put oil in i noticed yellow sludge around oil filler. I suspect water in oil yes? took rocker cover off and cleaned it, drove it for 3 weeks and its back, coolant level has dropped. i cant see signs of sludge on dipstick.
So it leads me to suspect head gasket, ive removed head this weekend but while im here is there anything else that it may have been???.

Note 2. I also notice in the good book that vanos testing must be done by a BMW dealer but that was working ok before, is it a safe bet that it will work when i reassemble it? i have manufactured the tools needed to set the crankshaft, camshaft and primary chain tension.

I was nervous as hell about doing it but sometimes needs must
thanks for any advice anyone can offer

[Antiburn]

Cracked head. I just cleaned out an engine block on a 530 with the same exact problem. The head had a very un-noticeable crack in it which led to the antifreeze and oil becomming a milk cholcolate color pudding. You might wana get your head reconditioned and/or checked over if this problem continues.