Rule number 1 of the small sportjets is NEVER, ever run them on a hose or dry. Exhaust gases build up, ignite, and pop the ride plate gasket out. This in turn causes a big leak that can kill performance, but worse case can suck water back into the engine. Sounds very much like what is happening to you.
Crawl under with a bright flashlight and check the gasket.
And for the mods discussing, its been a while, but IIRC the 120 sportjets were entirely merc designed outboard powerheads mated to a jet drive. The 90/95hp's were branded merc but were a Frankenstein mix of Force and merc parts. For the most part the outboard guys are probably going to be the most knowledgeable, although those boats are becoming pretty rare. (esp the 90/95/120 SJ') They don't have commonality with PWC's.
