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if you dont know enough about the sounds that can come from an engine or are not mechanically inclined you need to take it to a shop and have it checked out. They will probably be able to give a pretty good idea without doing much to it. Then you can get them to go deeper to determine how much it will cost to repair it.
As far as what can knock here a a few, wrist pin, rod bearing, crank bearing, cam wearing in head, cam lobes worn off and making noise on lifter buckets, water pump gone bad, and there are others. The thing is each one has its own noise for the most part.
Water coming out of the tail pipe is normal to a certain extent. Is the vehcile over heating when it is running, have you checked your coolant to make sure it is full. IF it is over heating or the coolant is low it could very well be a head gasket leaking. If those are ok then it is probably normal compustion engine condenstaion.
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Chris
PLEASE DO NOT GET RID OF THE OLD TN AS WE KNOW IT.
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