Looks like normal Detroit Diesel slobber to me

. The cause could be one or a combination of different scenarios.
Laid up outside for a couple of years without the exhaust covered can give you rusted/pitted valves and seats, rusted and pitted cylinder liners as well as stuck rings and corroded pistons. I'm amazed it ran at all. Do you notice any blow-by? This is an indication of how well the piston rings are performing, and general health of the engine. The exhaust manifold looks pretty coked up which is an indication of low operating temperature, excessive idling or low speed operation, or incomplete combustion due to low compression. As for overheating, observe the radiator top tank for bubbles in the coolant with the engine running - this indicates a combustion leak, either from a head gasket or a cracked head. This will also result in a loss of coolant during operation from overflow if you don't have a coolant recovery system installed.