As far as the milky oil, these units do this if they are only run for 10 minutes or less all the time, as the engine never gets hot enough to 'cook' the normal condensation out of the crankcase. But it can be a head-gasket or cracked block or head, if the unit is one that was running and working for a few hours everyday.
As far as the transmission grinding, a couple of things, are you sure the clutch is disengaging completely? Some of these units [especially after sitting for a very long time] wind up with material from the friction plate stuck on the pressure plates. if my memory serves me correctly, (there is no reason to expect me to remember clearly,,, it was a long time ago when this unit was young and I worked for a Cat forklift dealer) this clutch is one that can be changed without pulling the trans out by removing the scavenger pump on the back end of the trans input shaft and removing the shaft that drives the pump. you should be able to check the play of the clutch plates through the top cover while operating the pedal and linkage. BUT if the clutch friction plate is freely clearing the pressure plates when the pedal is down to the floor, then {as Swoop says} it will almost for sure be the synchros in the trans.