In your first photo in the first post, that upper shift shaft looks 180 degrees out. Could be an optical delusion.... When the control is in forward the shoe should be pointing forward. (To the front of the boat)
Since you lifted the lower shift shaft out of the shift crank (in the lower housing) to replace the seal, it's possible that it's one spline out. You need to pull the drive and check (you don't need to drain the oil or separate the halves unless it's wrong). Turn the prop ccw while turning the shift shaft cw. Both shafts should lock. And the shift shaft will be pointing to the 12 o'clock position. That's forward gear. Carefully turn the shift shaft ccw to about the 11 o'clock position. That should be neutral, and the prop should spin freely in both directions. While turning the prop cw, turn the shift shaft ccw to about the 10 o'clock position. Both shaft should again lock, that's reverse. Due to the ramped design of the shift dog, turning the prop in the direction of the gear that's engaged will push the dog back to the neutral position, which is why we turn the prop in the opposite direction for the gear we're looking for. And why you ONLY turn the prop in reverse to align the yoke splines when installing the drive. ..
On the GEN II drives the reason to be in forward gear (when assembling the 2 halves) is so the lower shift shaft will pass through the opening in the bottom of the upper housing casting. Other than that, it makes no difference. But that is only for the Gen IIs. On the Gen I, yes the lower must be in forward to get the correct alignment between the lower and the intermediate shift shafts. As the Gen II doesn't have an intermediate shift shaft, the requirement it moot.
Hope this helps.
Chris. ...
