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It's hard to tell, but all things are possible. If you are leaning towards that, I would do what Dennis has recommended and pouring a little Sea Foam, ATF or Marvel Mystery oil into the cylinder through the plug hole and let it sit for a day or two, then change oil and let engine run for a bit...

You should get a borescope (camera) and check cylinder with 65# pressure to see if there are gouges in it. If so then block will need bored out if specs allow it. May no be worth it, especially if you need outdrive also, then you have to consider "project creep". I know those 3.7s had problems...

Run!

That's very true. You would think that an obvious problem area would have been solved long ago by Grady. By just replacing the infamous 1"x1" angle molding with a channel type molding before installing outboard(s) would have removed most of the water seepage into core area.

For example many of the "notched" transoms where the outboard(s) mount has a 1"x1" aluminum angle molding covering the seam where hull/cockpit sections are joined. This molding has sealant under it when new, but after time sealant washes out and allows water to get under molding and into transom...

Actually, most of the compromised transom cores on older Gradys is not from water boat sits in, but from mostly water seeping in and under moldings covering seam of area where cockpit is joined together with hull. Much of this water comes from rain, washing, etc.

I've always used 3M 4200. Never an issue, and holds up tremendously.

Post up a couple pics.

Keep the 22, and get the 282.

I would want the stringers to be thoroughly looked at. Especially in the compartments under cockpit that that let in lots of water. Electrical could be trouble too.

Water can collect in other areas other than the stern bilge area. Pop up some of your inspection caps and look down in fuel tank compartment as well as any other areas you can check below decks. Most Gradys, although I'm not certain about your model, have drain tubes from forward bilge area &...

https://navydads.ning.com/profiles/blogs/why-the-navy-term-used-for-engineers-is-snipes

"Rule of thumb" approach to outboard mounting is to locate cavitation plate 1" up for every 1' back from transom, meaning on your single engine 3' setback should have your cavitation plate 3" higher than keel. I also have a Gulfstream, but with twin 150s, and they are also 3' back and cavitation...

First you need to determine if outboard is truly at the wrong height. Quick "rule of thumb" way to check this is that cavitation plate (just above prop) should be 1" higher for every 1' back from transom, measured from transom hull bottom directly in front of where engine is mounted. If this...

That year and model boat should have a wood cored transom. If it is the "notched" type transom with cut out area for mounting outboard(s) with aluminum molding covering top inside edge of transom, they had a habit of letting water enter transom core under this molding. A thorough inspection...

They are carburetor engines, as opposed to newer managed fuel injected fuel delivery systems that are more precise and efficient. That being said, although they use a bit more fuel, they are nearly bulletproof and capable of being tuned, repaired, and kept up by diy owners, saving plenty of...

3M 4200

Russ & Legend, I think you are right about three batteries, especially with windlass, etc. I found three battery switches in inside transom area, but do not see room for three batteries in this small tight area. I was going to get at least size 27 batteries, but may have to scale down to 3-24s...

I'm currently restoring a 1989 Gulfstream 232G with twin 150 Oceanpros on bracket, and I'm trying to determine how many batteries it was originally built with, and their locations. Inside transom looks like pic below, with batteries located under those bait/livewells. Hoping someone may have a...

Those older Evinrudes are pretty bulletproof and long lasting. Just very thirsty compared with newer outboards. if you have a fuel/water separator you should replace with new and pour fuel from old separator into a clear container and let it sit 10-15 minutes to see if there is water in it...