I do not have direct experience in this engine (mine is a Westerbeke); but I would definitely not use the engine again unless it has been inspected by an expert, for fear of additional damage. And fast - if water has gotten into the wrong part of the engine, that can wreak havoc. If the engine gets into the combustion chamber, well, let's just say it isn't pretty as water does not compress very well. And I once 'fused' an auto engine into a solid lump of metal when the oil escaped....
The disappearing oil is very worrying, as it can only go two places - into the bilge, or over the side; and dumping oil over the side, even inadvertently, is a bad idea and can lead to fines. Have you checked the bilge and under the engine? How is your exhaust? Could the oil be burning off in that?
If it was a petrol engine I would immediately say the cylinder head gasket had gone.
Final thought - this forum is not as heavily used as, say, Sailnet. For a generic question like this you may want to try posting it there.
Good luck - and keep us posted.