My money says Ben Dittmar’s response is spot on. The shock absorber has been sprung / broken in your lower unit. The shock absorber will grow in length when it breaks and the top of the shock absorber will wear heavily into the bottom of the driveshaft bearing carrier under the water pump. I just finished up a 1960 Fisherman that had a broken shock absorber. The bearing carrier ended up getting replaced because it was badly damaged by the shock. See the pictures below.

The shock absorber will need to be squeezed back together to.its original length and the seam between the halves welded. Once it is welded, use a brass shear pin for the prop instead of the steel one. That will protect the gears from damage should you hit a solud object with the prop.

-Ben