You can't use 50:1 on the old Johnrude engines that don't have roller or ball bearings. You MUST use a richer mix (at least 25:1) or you're gonna have trouble down the line.
Conversely, all but the very early Mercs used "fully jewled" powerheads, with ball, roller, or needle bearings on the rotating elements. These can safely use a mix of 50:1. Merc even issued a bulletin to that effect. That being said, it's a proven fact that you get better ring sealing with a richer oil mix, and if you were to run the old-timer Mercs on 40:1 or richer mix, it ain't gonna hurt nuthin'. Racing engines are the exception and you must run a far richer oil mix on 'em. BTW my old Goodyear (Sea King Clone) 5hp Twin used a 12:1 oil mixture! It didn't smoke that bad, considering. If you use a quality oil, you'll have less problems with that. West Marine sells a "smokeless" 2-stroke oil, and the stuff from Amsoil is pretty good too, from what I understand.
Back to the little JohnRude in the bucket, it looks to me like it's either not burning the fuel well (too rich, or poor spark, incomplete combustion), or there's a water intrusion issue in the powerhead. Those are very common ways to get that much emulsified fuel/oil mix in the water.
Most likely one or both of the ign coils are cracked or oozing dielectric. Notorious for that. Replace both coils for good measure & install a Tune-Up Kit (points, condensers, points lube), and likely she'll purr like a kitten.
Could also be carb issues (leaky float needle or running too rich), but my bet would be ignition issues or water intrusion.