Actually, I did not mention painting the inside of an engine block, specifically because of the potential for obstructing the small oil passages. Transfer cases, manual transmission cases, steering boxes, etc. do not have those passages, of course.
One other reason that most OEM engine manufacturers and many rebuilders do not paint the inside of engine blocks is because the cost of doing so far exceeds their benefits. Block preparation for internal painting is time consuming, and most users won't notice any benefit from the process, so they're unwilling to pay for it. That, and casting technology has improved considerably from when our M37s were manufactured. Some OEM engines were painted on the inside - I think International-Harvester painted theirs? Maybe that says more about the quality of their casting process than it does about their attention to detail, and the painting was a band-aid to fix a recurring porosity problem?
I don't know if the race guys paint the insides of their automatic transmissions. Casting porosity may not be a big concern to them, since the parts get torn down so often. But I do this because I hate leaks, and applying Glyptal to the inside of a transfer case housing casting is a proven way to prevent weeping.
In these Chrysler 230 flatheads, there might be some benefit to painting the tappet gallery, which has a very rough finish from the sand casting, and low spots that trap oil sludge. But since there's no valvetrain in the head, there's nothing to paint there.
If the surface is properly prepared, and the Glyptal is correctly applied, it will not flake off.
Your question about the oil trapped in the casting is a good one, and why I noted that the part in my photos has already been baked for four hours (two more than the recommended Glyptal curing time). It's a process of baking, then cleaning, then baking, then cleaning, until the residual oil stops surfacing. Only once I'm confident that the trapped oil has been purged will I put a top coat on the part.
Obviously, what I'm doing here is not for everyone, and I do this work only for my own use, not commercially. But for those who derive pleasure from taking a greasy, defective assembly and making it better than new, this process might be of interest. It's one of the reasons I enjoy working on my M37.
“When a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, IT IS THEIR RIGHT, IT IS THEIR DUTY, TO THROW OFF SUCH GOVERNMENT...” -Declaration of Independence, 1776