Mould in coolant channels!?

I have a Disco TD5 which I bought some time ago, supposedly with a good engine.
It has been run recently but soon over heated.
Upon stripping the engine down, I found really dry coolant channels with coolant crystals here and there and mould!
To me, this looks like coolant has not been run around this engine for a very long time, which explains the over heating.
Has anyone else ever seen mould in the coolant system? I should also note that the engine was filled just with water when I bought it, maybe there was something organic in that water which has festered.

If there was only water in the system, the cylinder head will have corroded to some extent. What colour was the mould?

yep see this allot in many other engines i work on and maintain ..calcium in the water mixed with coolant
another possible way it over heated could of also been electrolysis issue ..... and maybe your radiator is suffering a coolant flow http://www.griffinrad.com/electrolysis.php?tid=46

The mould was white and furry. Just like you get on some food.

I've never seen it on an engine before and lead me to believe that the water hadn't been flowing at all for a long time.

I did flush the rad and got some gunk out but not enough to stop flow. The water pump looked ok with no broken fins and turns ok.
I also wondered if the power steering pump could be damaged such that the PAS still works but it's not driving the water pump.
Without stripping that I don't think I'll find out for sure.

Open the bleed screw and start the engine then hit the throttle a bit to above 2000rpm, if the pump and flow is OK the water should gush up to the bonnet