I have good news and bad news.
<font color=red>Bad news:</font color=red> It's gonna cost some money and there are problems (based on your post). I talked with my brother in law, Corey, and he said he's seen this happen before, although not exactly as you describe (with the gear shifting). He said it sounds like a broken tooth in the case. Did you have it winterized? He said it's fairly common that people drain the oil from the case in the fall. However, they don't have it tuned up in the spring, and consequently the oil isn't replaced. I told him you drained the lower unit and found metal shavings. He said when the lower unit is dry, it will create a suction and drain the oil from the bellows, sucking it into the lower unit. (hey, I'm just going from my notes here) He said a new lower unit will cost anywhere from $2,500 to $4,000 as they aren't made anymore. He said the worst case he'd seen was a lower unit that was so chewed you couldn't tell where the gears had been. I said I couldn't picture it, then he told me to imagine a pinion gear with absolutely no teeth on it at all, worn clean and completely rounded off from the ring gear. That I can picture, ouch.
<font color=red>Good news:</font color=red> He's a wheeling fanatic, although he prefers Scout II's (racked mine a few times I'll tell ya, engine fires, whole nine yards), been working on him about jeeps, but it takes time to convert some people. He also understands the <font color=blue>Just-Empty-Every-Pocket</font color=blue> idiom and says OMC stands for <font color=blue>Open-My-Checkbook</font color=blue>. He said the gears from a V6 outboard lower unit will fit into the stern drive case and are the same. He has done a few of them, it takes him 4 hours ($25/hour = $100, pretty cheap), and only costs about $600 total, including the gears. He said if you're halfway mechanically inclined (which I tend to believe you are), he can expain how to do it over the phone or netcam. It does take some setting up (similar to a ring & pinion, although not exactly) with shims and there is a tool that's required (OMC type), but it's easy enough to do. He's done them in the driveway on a sunny Saturday, but then again he's the OMC certified mechanic. He said he sucks at typing so he'd prefer to talk on the phone or over the web, his E-mail is [email protected]
and he'd be more than happy to help you out. His phone number is (207) 273-6083, let him know you're the guy Mark (JEEPN) was mentioning with the Cobra outdrive problem.
He said he's worked at a few boat dealerships and this was the very thing they used to look for to rape the customer for every penny. They'll do the swap then charge you for another lower unit. Not him, he's left shops due to the unethical practices at some of them, he's too honest (nice guy, always gets the short end of the stick). So unless you ABSOLUTELY trust a dealership or mechanic, you're going to get taken.
He also said this is based on what you mentioned in your post, so it's possible it could be something else. Give him a call and you guys can chat about it. If it's something else he can help diagnose it over the phone. Good luck!
'81 CJ-8 Scrambled!
GM151/SM465/NP205 twinstick/7"Lift/33"TSL's/IHC D44's 4.10's Lock'd