Sorry, missed this note earlier. Safe bet the engine is mixing oil with water, and yes, the lower is due for a new set of seals. These are sort of a specialty of mine. MOST (95%) can be brought back with a new head gasket and some very careful cleanup of the head and block. Others will have a hole eaten through the block casting that require block replacement - but that's not the end of the world.
Might just as well plan on pulling the head. There' no way around that. Pretty safe bet the cooling passages are going to be packed with hardened sand that's all going to be picked/blown out. Each side can take hours!
The more important thing though, is what's left of the sealing areas the head gasket needs to seal off - on both sides. The area immediately surrounding the bore has to be wide enough to get a good seal. Corrosion that's had a chance to build up between the block and the gasket and the head and the gasket, can eat into this enough to ruin either side.
No thermostat is a pretty good sign of an engine in trouble - or about to be. Have a good look at the paint colors on the exhaust side. If some look dark, it's been hot. Some get so hot they actually melt the plastic valve cover. Look to see if the rocker cover bolt washers don't appear to have plastic oozing out from under them on the exhaust side.
If it gets THAT hot I will absolutely guarantee you 2 things. First, the head gasket is destroyed. 2nd, all is not lost. I've put a BUNCH of these back together carefully using economical used parts that have gone on to lead long service lives afterward. A BUNCH of them!
Lower units not that big a deal, unless you see it's badly corroded, or there's a crack in the case running parallel with the prop shaft. Still salvageable, but will be in need of some serious TLC to bring back to full service. They're generally affordable to fix...