Ya the stuff dripping was condensation mixed with a little carbon build up. This is normal -- all engines produce water and CO2 as a result of combustion. When it's cold out you see steam coming out of the pipe but it goes away quickly. If the 'smoke' smells like oil then you have oil getting past the rings. Ask to check the plugs -- no doubt will remain after that.
Most likely the sputtering is what jp233 said -- need to be cleaned, jetted correctly and synched. I posted about this a couple of days ago -- peeps throw all kinds of expensive goodies at the bike like slip-ons, jet kits, hi-performance filters and the like but they won't spend a little extra to have it dyno'd with a sniffer to make it work right then complain about how crappy it runs[:@]
Buy the bike -- even if the rings are gone thats a great deal