Had it apart again today.  Made sure the snap ring was oriented properly and centered.  Taper matched with groove.  Applied the carbon paper and tightened it down.  Even cranked the shaft a little to get as much effect as possible.  No use.  I didn’t get any impression.  So much for that.  I also cleaned up the old skeg with the freeze crack and tried it out.  It didn’t work any better.  So I’m thinking this maybe isn’t a problem with the skeg after all.

As far as the shift rod goes, mine is installed in the orientation depicted in the diagram mumbles posted above.  I have wondered if the pinion bearing race (part # 24 in the diagram) were not fully seated then there might exist the possibility that there is excess contact with the pinion and the gears.  Pretty sure that is what fleetwin is getting at in his post.  I will have a go at this next time I have it apart and see what the clearances look like.

Maybe tomorrow.

Today I tried seating the lower pinion bearing a little better.  I thought maybe I got a millimeter for my efforts, but no dice.  Gave necks’ suggestion a go.  That also failed to get me anywhere.

I dug up the old pinion ( I don’t throw anything away, just ask my wife) and compared it to the new one.  They appear to be identical.  I can take them to work with me tonight and take some measurements.  Fortunately for me I work as a quality inspector and have access to many measuring tools.  I replaced the old pinion as just about everything in the old gear case was ruined from sitting for too many years with water in it.  I think all I was able to salvage was the shift lever and pin.   At one time I had sold this boat and motor to an acquaintance who promised me they were going to take care of it.  After painfully watching it sit outside neglected for a few years, I offered to buy it back.

Going forward, if I find no difference in the pinions, then I should probably remove the pinion bearing, make sure there isn’t any debris or anything keeping it from fully seating, and reinstall it.  Just hope this doesn’t involve destroying any parts I’ve already replaced.  If that still doesn’t work, what are the odds of making a gasket that can take up the space and get everything to turn easily again?

I have not tried assembling and rotating the prop shaft without the pinion in place.  I remember replacing the forward gear because the clutch dog and forward gear notches were worn out and the unit would no longer function in forward gear.  Am probably still running on the old reverse gear.   I used electrolysis in an attempt to save some of these parts.  I did get a new clutch dog and installed it.  I’ll try removing the pinion and see how things move.

One more clue.  When I work this problem, I tighten the two screws closest to the output shaft.  I can take them down almost all the way and feel no difference in the freedom of rotation of the driveshaft.  Then I tighten down the single bolt at the opposite end and as I get close to bottoming out, that’s when the shaft seizes.