Re: How doomed is my lower unit?
You may not be as bad off as you think, while rust is never your friend, metal shavings and/or chunks are worse.
Water is obviously finding a way in somehow and it could be as simple as plug gaskets to fix it. You could pressure test the lower unit to see where it's coming from.
Try to find and fix the water leak first, then replace the gear lube, run it for a short period of time and then drain it again and see what comes out. If you are lucky it was just surface scaling and may just work itself free and can be drained.