If for some reason the #2 plug isn't firing, and the valves are working properly, that plug would get gas soaked. Is what you saw on the plug oil or gas?

 

Ditto! If the cylinder isn't firing the wet plug could easily be gas, not oil. You need to put the plug in the end of the wire and ground it to the block. Start the engine and see if you're getting a good spark jump across the electrode while it's running. If not then start tracing backwards from the plug wire to the cap.

 

We tried that already=(

But I'll definitely try again. also, I'll try the timing light and if possible, borrow my uncles inductive timing light for ease of operation (we have the boot-on-plug style).

We also took apart the distributor and all the contacts looked good, we replaced the rotor in the past, and all the wires and the module looked good. the module was tested at Autozone once. (It's an HEI by the way)

 

Tried what? The spark plug thing? How did the spark look? Did you try another that you knew was firing to compare the two?
Could easily just be a cap. I doubt it's the rotor, or it wouldn't be just one cylinder.

 

So I think we've got it. It has to be the lifters. There is definitely power at the plug and when we took off the valve covers again and cranked it, the rockers for cylinder 2 only moved about 1/16" to 1/8" whereas the others all moved about 1/4" or more.

So, before we try putting ATF in the oil like many sites suggest, anything I should know, or other suggestions?

 

It's either the lifters or the cam. Back off those two rocker arm nuts so that all the tension is off the pushrods. Now turn the engine over and see how much up and down travel they have. Lifters have an internal spring, so as they travel up and down the lobes of the cam, it will show in the pushrods movement. If the pushrods are still only moving up and down a little bit compared to the other ones, that means your cam lobes are pretty much wiped out.

 

Ok, loosened up the rockers and watched the pushrods STILL barely move. I am really doubting that the cam lobes just wore down abruptly seeing as this happed recently. Is there a possibility that the lifters are just stuck in a compressed state?

 

If the lifters were in a compressed state, they would still move up and down the same amount of the cam lobe height as all the other lifters. That's why I had you back off the rocker arms so the valve spring pressure wouldn't be giving you a false reading, if the lifters were bleeding down under pressure.
Sorry to say, but it looks like your cam is shot. And it's not like it went "all of a sudden". It may have been more of a gradual wear, but now it's worn down to the point to where the valves aren't opening any more.
Next step would be to pop off the intake manifold, then you can remove the lifters and get a better look at the cam lobes.
How many miles are on the engine anyway?

 

Had a '67 Chevelle that ran super great for years. One day I started it up to go to work, and the darned thing just didn'y fire on all cylinders. All the signs were just like your car, and I finally parked it until the weekend and drove my old Carryall to work.
On the weekend I tried everything, and finally pulled the intake to look at possible collapsed ilfters, and when I pulled them I saw they were deeply dished, and the cam was gone. Didn't even need a srraight edge across the bottom to see the dished area, it was that bad. Yet it ran pretty good, even the day before.
I'm afraid I'll have to agree with Camaro69's diagnosis of a flat cam lobe(s).