That white emulsion under the cap was snot, not sludge. BIG difference caused by oil/air/water mix. There is a TSB and a easy fix to prevent that. It doesn't hurt anything to leave it, it just looks bad.
With that said, look up my post on "snot" and the TSB info will be in there.
Sorry to hear about the busted motor from the flush. Ouch/Sucks! Wish we could have helped just a little sooner.