If it had oil in it it could easily fill to the top of the dipstick, water is heavier than oil so it could "push" the oil up higher than the place where the water was getting in, and yes when water gets into the combustion chambers it goes past the rings, I would not bother going through all the trouble of pulling the glow plugs unless it was not completely stuck and I met resistance while trying to turn by hand, you should always try to turn an engine in the same direction as it runs (clockwise looking from the front) but if it will not turn that way try a little bit the other if it will turn at all but not all the way around THEN try pulling the glow plugs otherwise it is just a waste of time as it might look like this inside, this engine is TOAST
This engine had the oil drained (USAF) but the water was WAY up on the dipstick
EDIT, if the intake was left off and it filled with water it WILL look like this inside, it takes time to completely fill an engine but does not take too long to do this kind of damage, also the water that came out of the crank case was perfectly clear, no rust at all.