Well first thing is first..get the water out of all the parts in the motor, I suggest flushing it with some cheap oil 5w30 and use a oil pump priming tool to flush the new oil through everything so that their is no water stuck anywhere which could do further damage. You need to get the water out of the lifters or you'll be spending $160 on those. To bleed them down you can put them in a vise, put a rag on both sides so that you do not damage them, find a nut that is just large enough to fit between the retaining spring on the top of the lifter, then slowly crank the vise tight you will need to do this is small increments but you will see the milky oil come out, then soak the lifter in a coffee cam until you need to re-install them.
Then, as UNIT suggested make sure all you current parts are up to snuff before you buy anything. I would look at one of Comps N2O cams if you plan to continue with the spray, they have some nice grinds and are odd the shelf, a custom cam would be great but you'll be waiting 2-3 weeks. The 1.7's aren't the best way to add lift, they also add unneeded stress to the valve train as they change the geometry, they should not be any quiter or louder then a 1.6 either
, I would go to a larger cam with a good set of 1.6's. You will also need some new Head Bolts, if you have the money go to ARP studs, they have a better clamping force then a bolt.
Good Luck