I'm the guy who wrote the post you referenced (32-3 Leak Management), so I thought I'd clarify:
The real "chronic" problem is that rain water enters from outside the mast and exits at the base of the mast, inside the boat. Such is the case with almost all keel-stepped masts. The simple fix here is to find a way to direct water from the mast step into the bilge, to prevent it from draining directly onto the cabin sole. My in-elegant but effective fix was this:
Removing the teak trim ring from around the mast base, notching the bilge cover, and caulking around the mast step. The result is that water from the mast no longer floods my floor.
The damage shown to the sole in your pictures is consistent with this type of leak: It is worse close to the mast base and emanates outward, to a lesser extent, to other areas of the floor (probably caused by motion of the boat while the floor had standing water on it). A couple notes: (1) It is not necessary for the forward bilge to over-flow for this to happen. The problem is from water running off the mast step directly onto the floor. (2) Once you do get the water to drain into the bilge, pay attention to how the forward bilge is configured. Most came from the factory with the forward bilge separated from the remaining bilge compartments and containing its own Rule bilge pump. While this worked well if you use the shower (it keeps soap, scum and hair out of the aft bilge sections), it doesn't work as well for mast rainwater. That forward bilge probably can't hold more than a gallon, so most owners drilled a limber hole through the TAFG to connect the forward bilge to the larger, aft bilge sections. While this is not a good idea if you frequently shower in your boat (most of us don't) the result is that a heavy rainstorm now results in only a slight rise in all the bilge compartments, rather than nearly filling the forward, previously segregated section.
Your picture also shows some damage to the lower inch-or-so of some of the cabinetry. This damage may be harder to fix than the sole. I don't know how you refinish only "part" of a surface, and you certainly wouldn't want to remove and refinish all the damaged cabinetry. Could give you some bargaining power on the sale price, though. Then maybe you could hide the damage behind pieces of 1-1/2" teak trim (kind of like floor trim in a house).
In my post, 32-3 Leak Management, I was referring to a leaking fresh-water deck fitting on the starboard side. Because the boat was on-the-hard at the time, and positioned slightly bow-high, water that entered the cabin in the forward hanging locker ran all the way aft to the galley before spilling out onto the floor. After re-sealing the deck-fitting, the problem has not reoccurred.
You ask what an '86 E32-3 is worth? Unfortunately, it's worth whatever the first guy who gets close enough to satisfy the seller is willing to pay for it. The exterior of your boat looks above average and may justify the 35.9K asking (some sellers of these boats in good shape start at 39K; a year later they are down to 35; the next year to 29.9). The interior water damage to your boat (though the rest of it looks great) probably justifies something less than 35.9K. This gives you some negotiating room. If you know a broker, ask him for a list of recent E32 selling prices--most should have access to this. At the time I was looking, I think most boats were going for about 85% of asking. My seller wanted 35K. I offered 29.6 and was turned down (he kept the boat on a trailer and had low storage costs). Several months later, after seeing several other boats (and always liking this one the best), I upped my offer and we met somewhere in the middle.
Also, I'd ask more about your boat's engine overheating problem. There can be many causes for overheating; the water heater is not a likely one. From the picture, it looks like your engine has the original Universal exhaust riser/elbow (as mine did--my engine tended to run hot). Two very common constriction points in the cooling system are the heat exchanger (which has a clean-out port on one side) and the water-injection elbow.
This is what my injection elbow looked like, and was the reason for my engine running hot.
As to water "in the bilge" vs water "under the TAFG," don't sweat it. After heavy rains last week, my bilge had several inches of water in it. I ran the electric bilge pump for about a minute. When done, there was maybe 1/4" left in most of the bilge compartments. I went back with a hand pump and drew out about another 1 1/2 gal total from the three main bilge sections. I sponge dried what was left in the bilge bottoms. Knowing that there would still be water in the limber holes between the bilge sections (under the TAFG), I use a ketchup bottle with a quarter inch hose attached and my own lungs to suck out some (most?) of the remaining water, which netted about 22 oz--not really worth doing if you know it's just going to rain again soon (and, I don't recommend this method if your bilges aren't clean).
The E32-3 is a great boat! Good luck.
