ok, so my 95 cherokee has 245000 miles on the stock engine, it was running fine when i bought it last summer, but it seems to feel like it doesn't have the power it used to. well the other day i noticed my oil was milky/foamy at the fill cap and i thought "it must be the head gasket" but i'm not positive. at this point should i just pull the engine and do a rebuild? or just swap the head gasket? has anyone done this?

 

Do a full oil change and check for more milky crap. If you find little/none, then do a coolant flush and check for oil.

You can try a compression or leakdown test, but sometimes they don't reveal a good or bad HG.

Have you done a tune up lately? Plugs/wires/cap/rotor?

If not, do it. If so, what'd the plugs look like?

Are you low on oil or coolant ever? If your HG is bad you should be low on something.

 

How far do you drive it on average every day? You may not be driving long enough for the engine to get to operating temp and burn off the condensation.

 

Was the stuff just in the cap? If the cap looks like it has milky foamy stuff, then the oil should also look like chocolate milk. I have seen many caps develop condensation on the bottom, this could be a normal situation, especially in cold climates and short trip vehicles.

 

I usually drive 30 miles a day and i'm seeing milky foam on the fill cap and also on the dipstick. but when i changed the oil it looked pretty normal. ive noticed a small coolant loss but only a little, however when i'm driving i can smell it. i did a tune up (cap,rotor,plugs) about 4 months ago. is it hard to compression test?

 

Well condensation forms when air gets drawn in through the crankcase breather tube when the engine and oil cool down after shutdown. The condesation/humidity thats drawn in will then evaporate and rise to and get trapped at the high points of the engine (usually oil fill cap and dipstick tube ) This could be the beginnings of a blown headgasket though.

Keep in mind, you stated that you are finding water in the crankcase, therefore if the gasket is blown, it would be blown at least between the oil and coolant passage. If so, when engine is running oil pressure should push oil into the cooling system, and with engine off the cooling system pressure will push coolant into the oil. You should see signs of cross contamination in both systems, and probably more oil in the coolant due.

Compression test is easy if you have a tester, all you have to do is remove spark plugs and unplug the coil. Screw compression tester into the spark plug hole, hold throttle to WOT and crank engine over for a couple seconds ( repeat for each cylinder ) You want to not only compare your compression to specs, but to compare each cylinder to the others.

 

One of the best answers ever given on this site, nice job!