I finally managed to get the S2 started and running this week, and after a brief run of the motor, I let it cool and checked the oil again. It had been clear before but now is a chocolate-milky colour!
I discovered some drops of the same substance near the rear of the engine .

It's heartbreaking to have to admit that a car bought with a supposedly recently-done head gasket now in fact has a blown head gasket.

Before I throw in the towel, is there anything else that could cause this?

UPDATE:

brown milk pouring out of rear of head gasket, white smoke from exhaust. Commiserations accepted.

 

Commiserations given

When the head gasketreplaced? Who did it? There are several ways the job can go wrong.

Cheers
DD

 

Allegedly one of the specialists in Vancouver, said the PO, but he was unspecific and I think the owner before him had it done.. so who knows?!

 

I would drop that oil, and the filter, and refill with fresh oil (cheapest you can find), and try again.

I have seen this a few times.

Head gasket blows, contaminating the oil system (lots of holes and galleries, it is a 10ltr system), gasket gets replaced, new oil etc, and coffee oil soon after, because they NEVER flushed the oil system as part of the original repair.

Of course the list is long, as Doug said, but if it were mine, and the vague info you have from the PO, I would flush that oil system, and keep that towel handy.

 

Uggg. I've been there. That said I wouldn't waist money on anything else except a Stant 30 Pound Cooling System And Pressure Cap Tester. (P/N 12270) It will be money well spent and can help you diagnose your current situation. Looking forward it could aid in possibly finding a working replacement engine from a donor if you need it.