I just changed my spark plugs this morning and while taking off the engine cover I removed the oil cap and noticed a yellow grease/sludge that was on the inside of the oil cap, but nothing else visible inside the engine itslef. I wiped off the substance and it looks like the inside of the cap has rusted. I'm just outside of warranty and I changed the oil about 4,000 miles ago and didn't notice this yellow substance, but I can't be 100% sure.

thoughts?

You have water in your oil. Don't drive any more!!! Get it towed to a garage and they will probably tell you the head gasket has failed. It's gonna cost you!

check your oil dipstick to confirm if the oil looks milky or frothy.
otherwise it could just be that you have some moisture build up in the crankcase from repeated short trips in he car. engine has to get hot to rid of moisture.

I agree with both ... if you have no other symptoms indicating a coolant leak [like having to add coolant regularly] it's probably condensation building up as a result of short trips. However, a compression and cooling system check should be done immediately to confirm that you're not having a head gasket or some other internal failure. If your warranty only recently expired you may still have some leverage should there be an unexplained and premature engine gasket failure.

On some vehicles, its very common to have that stuff on the oil cap and dipstick. I would not worry about it too much. Its more than likely just some condensation build up mixed with crank case vapors. Do not listen to those people telling you the engine is fubar.

This is true, especially so if you drive short distances, as the engine does not heat up fully the condensation forms on the coldest part, the filler cap and emulsifies the oil.

Thats 9/10 times condensation. Don't panic!

Thanks for the replies guys. You had me really worried there for a second. Yes, I do a lot of very short trips, which could explain the condensation. I checked the oil in the dipstick and everything looks normal.

If you do a lot of short trips where the engine doesn't reach full operating temperature, condensation will frm causing that whitish sludge on the oil cap.

Condensation from short trips, don't listen to those guys freaking out telling not to drive anymore. I had this in my car to a more extreme case as the moisture buildup froze up my oil seperator this winter when it got really cold one night and I blew the valve cover gasket. It got fix no big deal, I would suggest more frequent oil changes to get rid of the moisture