I blew up the bottom end on my CR by riding it hard on a long, straight road, then backing off the throttle. No throttle = no lubricating oil going through the hot motor. Without pulling in the clutch, the motor was still turning fast. In my case, the lower rod bearing dis-integrated very quickly and the bike locked up. If the big end bearing is gone, the rod will have excess play and it may lock up against the crankcase. I needed a new crank assembly and crankcase half, as well as piston, gaskets, etc... I strongly suspect your lower rod bearing and/or crank bearings are in bad shape.
On a two stroke, the water in the head does not ever come near the transmission oil. If water is getting into the oil, it is probably a bad seal at the waterpump.
With Hondas, an entire crank assembly is actually not too badly priced (I paid $170 or so at Service Honda).
The lesson is don't roll of the throttle after lots of road riding on a CR250 or any pre-mix fed two stroke. Pull in the clutch when you need to slow down after sustained high speeds. Oh, and carry a spare plug, too!