Most likely the oil cooler failed. Water doesn't get into the oil, just the oil into the water. 
After replacing the oil cooler, you need to flush your entire cooling system with detergent. 
I use Shout. I guarantee the day will be done by the time you get the last bit of oily water out, but it works. Shout did'nt turn my Vanagon into the Bubble Bus either. 
�
Robert
1982 Westfalia

--- On Mon, 3/23/09, Michael Sullivan <sandwichhead@GMAIL.COM> wrote:

From: Michael Sullivan <sandwichhead@GMAIL.COM>
Subject: Re: My overflow tank is full of oil!!!
To: vanagon@GERRY.VANAGON.COM
Date: Monday, March 23, 2009, 7:59 AM

Ken, So ideally if I do that and start, then any oil coming from the cooler
must be leaked into it, right? I did not notice any coolant or eater on the
dipstick.� Gonna go cehck the level right now as I drove it for about a mile
before I noticed this and it has been sitting for about 30 min.� Thanks,
Michael.
Michael in San Antonio
91GL AT 'Gringo'
73 Beetle

On Mon, Mar 23, 2009 at 9:43 AM, Ken Wilford <kenwilfy@comcast.net> wrote:

> Could be your engine oil cooler has gone bad and now you are getting oil
> into the coolant that way.� Here is the easiest way to check.� Unhook the
> two coolant hoses going to the cooler and couple them together bypassing the
> cooler.� Now start the van.� Is oil coming out of the cooler where the
> coolant hoses would normally attach?� You found the problem. Let us know
> what you find.
>
> Ken Wilford
> John 3:16
> www.vanagain.com
>
>
>
> Michael Sullivan wrote:
>
>> Just went to check the fluids and my overflow coolant tank is full of oil.
>> The main tank looks like it has oil in it also.� Only driven about 10-15
>> miles since my kid came back from Spring Break.� Not noticing any probs so
>> I
>> am blown away by this right now. What is my next step, please? Not
>> noticing
>> any leaks under the vehicle.� Waiting for theoil to settle so I can take a
>> reading.� Just changes it before he left to Forida about 3 weeks ago. TIA
>> :-(((
>> Michael in San Antonio
>> 91GL AT 'Gringo'
>> 73 Beetle
>>
>>
>>
>