In the lower unit, does the vertical shaft move up and down to engage and disengage the prop shaft? Would it be possible something let go in the shift linkage, therefore throwing it into neutra. Trying to understand how shifter works
on all volvo SX-M (including most if not all other volvo) sterndrive units the shifting takes place in the upper half of the drive. the drive unit itself is comprised of two halves, the upper and lower.
nowhere in your posts have you mentioned that you have removed the lower half of the drive from the upper half but based on your posts and the evidence you have provided it seems to me that you have been investigating the lower half of the drive, correct?
to answer your question, no. the vertical shaft located in the lower half does not move up or down to engage shifting, as i stated the shifting takes place in the upper half via a cone clutch, shift foot/actuator and a set of three gears. one drive gear and two driven gears (one for FWD the other for REV.
if my guess is accurate and you are only dealing with the lower half of the drive then there is definitely an issue with the gearset (most likely) or another component in the lower half. when rotating the vertical shaft in the lower half the propshaft should spin, basically the lower half is a "direct drive". there is no way for the gears or shafts to be disengaged unless something is damaged
fyi major drive overhaul and repair is not a job that i would consider appropriate for a novice to attempt. it requires special tools and at the very least an oem repair manual