Check the oil seal that is just below the impeller for any signs of oil seeping through. Also take a look at the drive shaft in that general area for signs of pits in the metal. Mercury did not go with stainless steel drive shafts until about 1978 on those motors, and the regular steel shafts would tend to deteriorate, particularly in salt water.
Getting the key to go back in between the impeller and the drive shaft is a bit tricky, but be patient with it. Give the impeller housing internal surfaces a wipe of liquid soap to provide some initial lubrication.
Also, the lower unit sometimes is a bit stubborn going back on. Don't force it, just wiggle it enough so that it slides in. Make sure the water tube leading from the impeller housing mates with the tube leading up to the engine.