I got it to stop getting water inside the motor now, used copper gasket sealer on everything when I put it back together today. I'm not sure what did it, maybe it was fine all along and it just filled up with water when the hose was hooked up to it, I wasn't controlling it so idk how much pressure was going through it when it was off.
There is still a problem with it running. I started out by noticing that the venturi in the carb would pour gas out after a couple seconds of running or turning over. So that came apart, found new diaphragms in the fuel pump. Also found the spring for the needle and seat to be missing. Was given one that was supposed to work, maybe this is now my problem but it seemed to fit and control the needle well. I think the pump was put back together incorrectly, so I followed this diagram to put it back together
1990 Kawasaki 550SX (JS550B1) Parts, 1990 Kawasaki 550SX (JS550B1) OEM Parts - BikeBandit.com
It now will run, but it is very hard to start. And a couple times when it was running it would start running poorly and die if left idling. The plugs are new and have been swapped to other ones to make sure they were not the problem.
I also have the needle jets set out about one turn for all three, that is what I found the stock settings were supposed to be. Any validation to that? Also possibilities that I have in my head are bad gas, but at least half of it is fresh in the tank, and maybe still something wrong the fuel pump. Compression is about 90psi, which is low but I don't think low enough to completely eliminate starting. Is 120 psi stock for these?