very thin oil could have been from the carb overflowing and leaking fuel into the engine , then the diluted oil didn't do a good job of lubricating ----------- oil at the bottom of the stick isn't a good thing , but shouldn't have caused a failure , the timing chain could also cause low or no compression , a 87 engine with no compression I would think needs a rebuild , which would include jug work or replacing the jug , timing chain , the head worked , and hope that the connecting rod and crank are ok