I'm having the same problem with a "79 Sea Ray 240 Sundancer w/Merc. 260 and Alpha One Gen 1 Stern Drive.
Initially I thought there was shift cable issues as it wasn't engaging the outdrive (fwd or rev.) so I removed the outdrive to inspect the lower shift cable and do a thorough upper gear inspection, which I did; as I was preparing to separate upper from lower units and inspecting the gimbal bearing, I used a flashlight to look inside, it was then I realized the coupler was wiped out (!@#$%^&).
I had already reset the adjustments on the cables to their original positions and followed the instructions in the manual as well as following instruction on two good YouTube video's to make sure I got it right.
I have since replaced the Engine Coupler and both control cables with Quick Silver Platinum Cables and adjusted according to spec.
Now I cannot get the interrupt switch to work properly; FWD & Neutral work good, but when I try to get reverse to engage the interrupt switch rides high on the mechanism - I've tried adjustments in very small increments until I've got it the best it seems to want to adjust.
Without starting the motor reverse doesn't seem to want to fully engage, but when I put the water hose on it, it will actually engage reverse but it doesn't feel or sound right. I've found that I can wiggle the lower shift cable and the interrupt switch will eventually return to the correct position, but it doesn't "interrupt" the engine during the shifting procedure like its supposed to. This unit was working fine before I changed the coupler and I've spent HOURS going over the video's etc readjusting trying to make it work right, with no success - I'm at a loss here, I can usually fix anything but this one has me baffled for sure. Been trying to get a boat mechanic to come look at it and help diagnose the situation but so far no help - planning to pull the lower shift cable tomorrow and look for problems with the cable.
This unit also has the revers lock mechanism on and seems to have excess play in the control arm; wondering if that could be contributing to problem.
Any help figuring this out would be greatly appreciated - there's some pretty intelligent folks on this forum and I've followed a lot of advice ya'all have contributed - I appreciate all your expertise and experience.
Thanks in advance
Mick