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Where did you install the return line? From the factory connect or someplace like the the oil cap ?
I installed mine from the factory connect but didn't tighten the clamp quite right and the hose came off. there was a lot of oil splattered in the engine compartment after just a couple days. Just got my catch can - will install it pronto. The water mix you see is because during initial startup there is a lot of moisture that comes off the engine and condenses in your catch can.
Or.... And I hope not... You have a cracked sleeve, which allows coolant down into the oil to make a nasty milkshake. I speak from experience. Look at my albums.