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That's a good point Adrian.

Thanks for that Adrian!

Finally got my engine back together again this afternoon but I have a problem, when I filled up the water I have seepage between cylinders three and four.

This is the problem I had with the old block but only under pressure this time it is without starting up.

I have torqued the head down to 49lb as per the manual, can they be torqued any further?

If not I can only assume that the head is warped as I have used the same head, any thoughts or suggestions?

I think you have answered you own question, its likely the head is warped and will need a skim, i would also be inclined to check the block aswel when you strip it back down.
Always make sure mating surfaces are squeaky clean, and the bolt/ stud holes are clear and not full of rust etc, run the bolt/stud fully down the threads after cleaning out.

I think you are correct but it was checked by a friend who is an engine builder before I put it on and it seemed to be fine.

Next question is how much can you take off before you need to get the pistons skimmed as well?

It needs to be checked with a proper straight edge in multiple areas and pressure tested while its off as in may be internally cracked.
The pistons wont need skimming as they don,t normally need it, if its bent generally the removal of upto 10 to 15 thou is acceptable but is there any evidence its been skimmed before, most manufacturers give tolerances for skimming of heads and some offer a way to measure the head to find out how much can be removed before the head is scrap.
once that's out of the way get the best head gasket you can for it, most spurious brands are cr*p. don't forget to put a light amount of lube on the stud/bolts/nuts so you get an even torque setting.
When you take the head off pay close attention as a leak that severe should be blatantly obvious, something seriously wrong there.

Head now off, I used a gasket purchased from the club as NOS ones always seem to have rust on them.
Nothing visible in the area where the leak was but as it has not been started I suppose that is normal.
As this is a another short block with my original head on it, I think the problem must be the head???

Time will tell.......

Just wondering, how did you know you had seepage between the cylinders?

I had a new Head Gasket give up on me after 300 miles, it was torqued to 49 as per Mr Haynes. Bought another and torqued it to 55lb which was recommended in the Autobooks manual and it has survived the last 7,000 miles care free, not sure if that helps at all but maybe something to consider.

Sorry I wasn't clear, the seepage was from the side of the block between 3 and 4 spark plug holes, the original engine leak was discovered when I took the head off and there was water in all of the bores.

Good point, what is the correct torque setting, it seems to depend on whether you use Hylomar or Wellseal.