TOPIC: Slipping gear or Prop

What kind of "bolt" is in there? The same as the pivot pin in the picture? There is only one thing that will work properly and it looks like that picture.

You can verify what you have in there by loosening the screw and pulling it out only part way. Don't remove it fully, as it'll disengage the shift yoke and potentially cause a lot of mischief.

If it's the correct part, it'll be evident once it's partially-pulled for inspection. Maybe there was a new one in a kit you ordered??

Well, the lower unit is joined with the motor at last. Getting all of those water tubes aligned was difficult. I was struggling with a flashlight in order to see what I was doing while not getting the flashlight stuck in there when I was wishing I could bend light. Then I remembered I have LED string light from my holiday display project boy did that help! Add in a USB snake camera and I finally got everything lined up!
I will start testing everything next week, I am a bit nervous about starting it for the first time. I am also going to make sure that the shifter is properly set. Any other things I should check out on the first start?

So, a fail on the testing. It took a while to get it started but once it did it seemed like the gears were working. Forward definitely worked, reverse and neutral worked ish...
After a few changing of the gears it didn't seem like it ever went out of forward. The positioning on the motor for the gear location was okay but the result just wasn't right. I shut it down and then drained some oil out to discover that it was milky....water was in it. I need to understand the proper way to use the seal replacement, I probably was trying to be cautious and not use too much. I replaced all gaskets that I could find to purchase but I didn't add the form a gasket to the ones that I purchased. If anyone knows of some videos that might be helpful please let me know. I found one tiny piece of metal in the pan so something grinded but nothing major. As soon as I can face it (need to travel for a week or so) I will start the disassemble again. I am hoping that I will find the leak before the gearcase, I really don't want to take that apart again although it would be easier the 2nd time around. Feeling a little depressed but I must admit I figured the chances of it working the 1st time around was rather slim.

Pull the cover(s) off so you can see the shift shaft move. Maybe something came loose there.

Drain out all the gear oil and then apply air pressure (no more than 12psi) to the drain or fill hole. This should reveal where your leak is. Although I'm guessing that it'll be the driveshaft seal, given how fast water got in the gearcase.

Improperly installed or bad seal will allow the water pump to suck a lot of oil out of the gearcase and this oil is displaced by water.

Well, this might be the easiest fix ever. The upper oil drain plug was leaking. The seal on it looks fine but bubbles were escaping. The lower unit has been submerged in water for 10 minutes with 10 lbs pressure on it and so far so good. I am going to give it more time just because. The seal on it looks like nylon. I am going to replace the plug anyway but should I put a rubber gasket or go with the new gasket with the plug?

Is the o ring in the proper place or should it be at the top of the drive shaft? I am going to do vacuum test, pressure test passed.

Yes that shaft 0-ring is correct. the upper plug is not a drain but is mainly used to tell if you have the lower unit filled properly. When filling the lower unit you fill from the bottom with the unit down. Pump full of oil until it flows out the upper hole and then put the upper screw/plug back in while you still have the lower oil supply connected on the bottom. The "gasket" could either be the nylon type or an 0-ring that fits snug. I was never a fan of the nylon washer type but if that's what you have use it. Once you have the upper plug back in and snug you can disconnect the lower fill, you'll lose a smidgeon of lube but if your really fast putting the lower screw back in you're in good shape.

Thanks for the reply. I did a pressure and vacuum test and everything held just fine so I am now going to reinstall it. When I did the pressure test I found a really compressed o ring along with the nylon gasket. I have replacement for either the o ring or nylon. I thought maybe the nylon wouldn't be affected by the oil as much as the rubber. Is there really any reason to use one over the other?

Use the nylon washer only. Don't stack. The drain plug probably doesn't have a groove to seat an O ring. So it'll just squish out rhe more you tighten the drain plug. A guaranteed leaker.

Newer outboards use fiber washers which seal better. But the nylon washer should be ok.