Update:
In the middle of a rebuild, we found that the head gasket was bad between cylinders 3 and 4. The IAC valve is stuck open partially. Also, the explosions within the cylinders 3 and 4 have cut a groove into the head between them. This is what caused the head gasket to go. Also, the piston rings are bad on it which may have caused the bad compression. The valves are fine and in good condition. Thanks to everyone for their input!

Keith Asche
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1988 Isuzu Trooper II
2.6Liter I-Tech MPFI I-4
S Model
182,451
Brittany Blue Metallic
http://www.cardomain.com/ride/3110466