Re: lower drive shaft concern
ahhh... now that i see the other side of things i formally retract my initial WAG and i'll offer a new WAG.
Quite simply.... the driveshaft is to high. But I think you know that already. Now why is it to high???? Could be a couple reasons.
Have a look at the parts breakdown.
http://www.mercruiserparts.com/Show...03&bnbr=90&bdesc=GEAR+HOUSING(Driveshaft)+-+R
When you build the drive the first thing you need to do is set gear height. Its done by using the shim gauge and adding or subtracting shims under the needle bearing (#9 in the pic... but they don't show you the shims in the parts breakdown)
Then you need to set the rolling torque on bearing #21. Thats a tapered roller bearing and all tapered bearings need to be set correctly to function correctly. If the bearing is set to tight, it will want to lift,(before it grinds) and it will overcome the ability of the preload spring (#16) to hold everything down correctly.
There is some normal up and down movement on the driveshaft when you have the lower unit sitting up on a bench. It's how much it moves when it's all together that makes the difference. Because of the way the gears are cut and how they push against eachother, the driveshaft wants to shoot up out of the drive when the boat is underway. It is the job of the preload pin/spring to keep it down in place.
So getting down to your problem.... and depending on the tools that you have. I'd probably start by checking the backlash, if the backlash is good then you know your gear height is good. you'll need a dial indicator and the Mercury flag to do it. If that checks out then i'd check the rolling TQ on the upper bearing. If that checks out i'd replace the pin and spring in the driveshaft.... but don't ask me how to do that... i've never had to. In fact I haven't been inside an "R" drive aside from a water pump in a while.
If you ever wondered what the difference is between an "R" drive (same thing basically as a #1...) and an "MR" drive... which is the same as an alpha 1.... its all in how they handle the upper bearging preload and how they deal with locking down that driveshaft. They do it a bit differenty and they do it without that preload pin.