I hope gears, bearings and so on are in good shape, there was water in the case, but also oil, when spinning the prop by hand everything sounds normal, and it spins freely.
Did get a bit of work done today, got the steering broken a little bit more free, its still a bit stiff, but a lot better than before, also got the tilt broken free, i hope the steering will losen up totally at some point, ran out of grease.
In case other people got the same problem, here is what i did:
Drilled and tapped another hole for a zerk fitting in top of the steering swivel, added good amounts of penetrating oil, and regular motor oil, and forced it in with a compressor, then the engine was strapped to a table face down, and a long tube was fitted in the mount of the engine, and then slowly move it back and forward, also used a bit of heat to melt the old grease.
It did take the better part of 5 hours the get it freeish, will keep working it back and forward tomorrow, will also try and see if the engine will run.