I'm hand-lapping valves on the LS1.
This is probably a silly question, but I just wanted to confirm that I have to wipe off the lapping compound prior to the hydro test.
Yes, remove all traces of the lapping compound - it is the metal to metal joint between the mating faces that is being tested.
Not only should it be cleaned off, you want to ensure you don't get/leave any on the valve stems. You'll wear out the valve guide in short order if you don't. Remember in engine building, cleanliness is next to godliness. You want to ensure everything remains as clean as possible and this means removing all of the lapping compound. Clean it all and don't spare the towels!! :o)
Yes it must absolutely cleaned off. The compound is an abrasive paste, as such on initial start up it will be ingested into the engine. The outcome would be the same as leaving some fine sand on the top off the piston while assembling the motor.
People usually think that the cylinder head, turbos, or transmissions will be the most expensive part of a complete rebuild, but if you're doing it right... the required number of $7-8 cans of carb/brake clean may actually rival any of those component's overall cost lol.