There are a few checks I'd be doing before making any conclusions about your problem. I'd do a volume check on the pump. I'd also put a section of clear hose in the water line coming from the drive. If it is sucking air, then that's how you'd determine it.
Chris.........
This is a long story:
I bought this boat new, and babied it for the 1st 20 hours. I boat on Lake Michigan, and it's almost never calm. 1-2' waves are a nice day, but every once in a while I could open it up. What would happen is the RPM's would go up to 4200, and I could trim it up to 4400. Speed was around 48 MPH with a 17 pitch prop. After a couple of minutes, the RPM would start dropping. If I throttled back, I could then go WOT again for a few minutes. If I left the throttle wide open, the RPM's would drop until the engine quit.
The dealer couldn't really find anything wrong, and blamed it on incorrect timing, an intake leak, bad plugs, bad ignition, but nothing fixed the problem. Again, it was a rare day that I could really test it, so this went on all summer. Finally one of the times I was out, the engine quit, and dieseled. The restart was VERY hard, and it took quite a while to get the engine started again. It seemed like gas was boiling out of the carb. I took it back to the dealer, and it seemed like it was only running on 7 cylinders, as it took quite a bit to get it to plane, and top speed was way down. They could find nothing wrong. A week later I took the boat back again, and asked them to do a compression test, and low and behold, one cylinder was dead.
At this point they also figured out the water pump problem, and said the fix was to RTV the upper gasket on the impeller.
I thought that the engine was toast, and Mercruiser would replace it, but they did not. They even refused to replace it, and even told me to stop calling them, as they were not going to change their mind. I pointed out that the only reason the engine would lose RPM's is that it was overheating. The gauge never went above 190, and the over temp alarm never sounded, so in their mind it never overheated. The dead cylinder was a bent valve, and Mercruiser paid for a new valve job. I continued to push for an engine replacement, but got no where.
After that, my boat worked fine, but never acheived 48 MPH again. The best it would do was 42 - 43 with the 17 pitch prop, and my WOT RPMs dropped to under 4000. I had to re-prop to a 13 pitch to get my WOT RPM's back to 4400.
Since then I have always RTV'd the upper water pump gasket, and have run it WOT many, many times. I didn't really need the 48 MPH, so I gave up on it. It's been a nice reliable boat, and have lots of hours fishing Lake Michigan with it. The engine has idled for 18 years trolling for Lake Trout and Salmon. It have NEVER let me down on the water.
There is a 2nd half to this story, if you are interested.