Is a freeze plug responsible for loud knocking and stalling of an engine?
The only purpose for freeze plugs is for preheating an engine block before starting. When a freeze plug is bad they will generally leak coolant but not be responsible for a loud knocking noise. If I were you I would first verify the correct fuel is in your tank (gas or diesel). Second check ignition timing, Third check for bent puchrod which this one should also give back fireing. Only if the freeze plug is leaking enough to cause the engin to overheat. A freeze plug is SUPPOSED to allow the coolant to push out the plugs if the water freezes. The freeze plug seals in the coolant when everything is working normally. Freeze plugs can rust through and leak, but that's all they do, they don't cause noise unless your engine is overheating.
Why would water be coming out the back of your 1987 Dodge 318 motor are there freeze plugs in the back of the block?
When the engine is removed from the engine compartment, and detached from the transmission, there are freeze plugs on the back side of the engine. You may be able to just disconnect the engine from the transmission, and loosen the motor mounts and lift the engine partially away to replace the freeze plugs.