[QUOTE=svAlegria;365146]Why was the water first seen at the bottom of the bell housing. How could water escape from there?
Dan, The saildrive gear case (upper & lower) is supposed to be completely separated from cooling
so cooling water shouldn't be leaking into gear area.
From your description, you have water in the upper gear case which is connected to lower gear case (prop shaft area). Your oil/transmission fluid fills both upper and lower gear cases so a water leak will flow from lower to upper gear case. Since the upper gear case has a splined shaft that goes into the bell housing, water is probably filling up the upper gear box and leaking into the bell housing around the splined shaft.
Now where is the water coming in? First dive down and make sure the drain plug is still there. If that's not it, the most likely place for a leak is the water seal around the prop shaft. I've never tried this, but I have an idea on how to isolate the source of the leak. Get a heavy duty plastic bag and put it over the prop and lower portion of the drive leg. Wrap some rubber (preferably neoprene) tightly around the drive leg to make a seal for the bag. Then seal the bag around your rubber seal tightly with some cable ties. After your "leak stopper" is installed, open the fill on the saildrive and see if water flow stops. If flow stops, the problem is your water seal around the prop shaft. You will have to haul the boat, but repair is fairly easy except for flushing
all the seawater of the the gear box. If this is you problem, I would also try to pressure check the drive after you put in new water seal on prop shaft. If the water is leaking around the splined shaft, you may also have a bad oil seal
around the splined shaft which is allowing water into the bell housing. Normally, the gear box should be slightly pressurized when warmed up and you will hear a "psst" noise
when removing the dipstick.
If the flow continues with your bag in place, you may have a bad gasket
which separates cooling water from oil passages. If this is the case you will have to haulout and take apart the drive (big job).
Good luck and let us know what happens.