So this kit that costs 4x as much?
This is the correct kit for my drive right?
Yup. OEM is best, but FWIW I'm on year 4 of my Sierra bellows and they look new. That kit includes the gimbal bearing, which probably adds significantly to the price.
Cannot find anyone affordable with time to look at the boat for several weeks, so will do what I can on my own. One of the guys told me to just fill the engine compartment with water to see where it leaks out, versus putting it in water and trying to see where it is coming in. He said just be sure I do not get water up to the starter or the starter will get ruined.
Is this legit advice?
I wouldn't do that. You might not see the leak unless it's gushing. Also risk getting water into bellows, etc.
Other than the alignment tool, what other specialty tool(s) would be needed? I have a fairly extensive set of tools for Home construction, automotive, motorcycles, 4 wheelers, bicycles etc...
You'll need an exhaust bellows install tool (unless you get an exhaust tube instead, which is super simple to install. Also there are instructions for a DIY bellows install tool). You'll also need an alignment tool off of ebay; they have kits that include a gimbal installer with it, which might be worth getting. That's about it. You absolutely need the factory service manuals for your engine and stern drive.
Don't worry, seems overwhelming, but you'll have all winter to learn! What I'd do before you get on the water this season:
1. Find the leak. Critical.
2. Change/check oil and gear lube. Easy to do. You'll need an oil pump and gear lube filler if it hasn't been mentioned. Shouldn't take you more than an hour or 2 even if you've never done it.
3. Pull drive, change impeller. This is a crapshoot. Should be done before you get out there, but if you can find when the impeller was changed, you might risk it. Definitely in the offseason.
4. Bellows. Those need to be done, but unless they're leaking now they can probably wait.
All of this is dependent on that leak. It may force your hand, and your season may already be over if it's in the bellows. And if it isn't, your boat may be junk...