Small gasket goes on top next to powerhead centered on water tube flare. The extra
thickness "should" be enough to seal around tube. I use Permatex gasket sealer.
Mercury Illustrated Parts Manual for KE4/Mark 7 is on Western New York chapter site.
The design of Mercury K Models is well thought out and logical but they are different .
Louis
All that is required is a water tight junction between exhaust/driveshaft housing unit and water jacket so that water flow is from water tube into water jacket. I suspect the "O" Ring is located concentric to water tube not under flare as is often mentioned. I use the small gasket A bit of leakage past the flare into the lower on twin will do not harm and may do a little good
on a single as far as cooling the exhaust gas.
The large gasket seems to have evolved from a combination of gasket and metal with
the metal cover over exhaust hole to a plain gasket only. I wonder if the KD and early KE
twins require the metal or if a plain gasket is sufficient. I guess a new question.
Louis