Mercury Repair Questions? Ask a Mechanic for Answers ASAP
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Yes, that is bad. As the engine continues to overheat it will eventually effect the pistons and cylinder walls. It may buy you some more time if you were to use a head gasket sealant product, such as "Blue Devil", depending on how bad the gasket is, that may make it drivable for a little longer. (sometimes up to a year).
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I can get the test instructions for it to be sure it's a head gasket and put it in a PDF file, (it is rather large) and send it to your email address for a little bit more.
You will just have to accept the additional service offer and ENTER your email address in the “ENTER CONTACT INFO” section so that I can see it, Thanks