I agree with Dave B. If you have a 1958 lower seal it’s worn out, Mercury aimed the bottom seal lip down so it could release extra fuel in the crankcase. I think also your condensors are bad too. I also had problems with a 20hp Mercury magneto. I replaced everything, points, condensors (capacitors) & coils & it still ran as you describe. Guess what I found. I ran a bonding, grounding wire from the magneto plate to the block & it purred. I had cleaned the magneto plate & block matching surface before hand clean enough to eat off with s very light film of grease & it was enough to get a bad connection between the two. My points had turned gold from the heat of a current reverse! Please try running a jumper from the magneto to the block for testing. Use a OHM meter to measure resistance between the two.
Also Replace the crankshaft seals top & bottom or you may suck water into the lower crankcase & destroy the lower rotating assembly please.
You need an instrument Merc o Tronic to load test those capacitors (condensers) I’ll bet they are bad. Test the new ones too. I was helping a friend building a big block GMC pick up & he bought rebuilt windshield motor that didn’t function. We found a nonconnected wire inside the wiper motor. I ALWAYS bench test new parts before installing. Spend some time & you will be rewarded!!
Good Luck
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