Have I ruined my engine?

Cliffs Notes: Cooling passages completely clogged in engine.

I'll start with a little bit of history.

I built this engine in early 2007 as a spare for a turbocharged Ramcharger I was tinkering with. It's nothing special, just a simple rebuilt magnum 360 with a small cam. It sat in my garage until early 2009 when I decided I wanted to use it for another project. My curiosity got the better of me so I built a test stand to make sure it ran since it's the first motor I've put together. It ran fine as far as I could tell. No weird noises, never overheated, or anything else that would throw up a red flag. I ran it several times for my personal amusement for a total of about 1 to 1.5 hours.

After about 2 months I decided to take it off the test stand and put it back on the motor stand to gain a little room. When I drained the water it was real nasty and full of rusty junk, but I figured I'd just flush it real good when I got it in the car so I wasn't worried. I just used regular tap water, no antifreeze. In hindsight it probably was a bad decision to not drain the block when the engine was on the stand. The motor has not been run in over a year.

Now, I'm to the point to where my build is coming together so I tried to flush the cooling passages in the motor today. Here's what I did.

1.) Made an adapter so I could connect a water hose to the intake manifold (where the heater hose would normally go).
2.) Plugged the thermostat opening, bypass, and heater hose connections with rubber expansion plugs.

The idea was to let the water come out of the water pump inlet and drain into a bucket when I turned on the water hose. Radiator wasn't hooked up. Well, it didn't quite work out the way I expected.

When I turned on the water (I didn't crank it open, just until I heard water flowing from the valve), nothing came out of the water pump inlet. Nothing. I figured the motor was filling up with water, but after about 20 seconds I turned the water off to see what was going on. I loosened the rubber plug in the thermostat opening and it popped off like a champagne cork. Nasty water went everywhere. When the geiser stopped I realized that the intake manifold was holding water and NOTHING was draining. And it held A LOT of pressure.

Sooooo, I'm assuming the coolant passages are completely clogged with rust, which really sucks because I'm so close (or atleast I was) to getting this thing on the road. I'm open to suggestions because I have no idea how to deal with something like this. Any of you dealt with something like this before?

Any input will be greatly appreciated.

Thanks