Re: New Project, First "adventure" into boating
IMHO, which is just that, an I/O would be much more expensive to get installed and up & running then a good used OB. Depending on the 'new' dry weight of the boat, the 85hp Merc may still be under sized. But again that is an opinion w/ little fact to back it up, since I couldn't find a spec sheet for a Sportsman Imperial 20' Cuddy. I didn't spend much time looking to be honest. If the power head & rest of the motor is in good shape (you mentioned earlier a bad lower) and you have no intention of using it (I/O conversion or not) get it posted somewhere for sale, while people are getting their rigs ready for use.
Keep an eye out for a donor boat &/or motor OB 100hp +, you might get luck & score a great OB for this boat, a trailer & or hull you can sell, and possibly other odds & ends to use on this one too. The other choice involves selling the trailer & introducing a sawzall to the donor hull. This is also an option for an I/O donor, but they are not as plentiful as OB's.
The current splashwell is molded into the cap, lending support to the cap, the transom & the stern end of the hulls sides. The transom is currently probably 1.5"+/-, the favored I/O by Mercruiser needs a 2 & 1/8" transom, and an entirely different relationship of the transom, hull, stringers & motor mounts then an OB does. Different stresses & weigh bearing, to a much heavier engine. Although it is much lower in the hull, and obviously further forward then and OB. And when you build the doghouse to cover the motor, it may not lend the same support to the cap & et al mentioned above.
Depending on the time frame you're trying to keep, you may have a very long time to make an OB decision which requires little rework pretty much until you're ready to hang it near the end of the project. I/O installation will require LOTS of changes that will be wholly dependent on what motor & outdrive you pick, and all that will need to be fairly soon and before the back half of the boat is put back. You'll probably want a permanent, under the deck tank.
Installation tips for permanent tank
I hope some of that ^^^ helps.
Either way, there will be lots of help along the way around here. Oh and I just remembered you'll need an alignment tool to align the motor & outdrive in an I/O conversion, not $200, but more then $100 @Ebay I hear.