I think I found the oil leak problem. When putting the lower drive
shaft back in, I noticed that there was a piece of the bearing housing
missing. It's not a good place since it's around the O-ring. Part of
the ridge is missing from where the o-ring sits. It looked as if it had
been leaking because my o-ring was deteriorating at that spot.

Here is my best guess on what happened. I was cruising across the lake
with no oil in the LU. When it finally kicked out of forward into
neutral, I think at that point the lower unit was almost locked up and
my shifter shaft came loose from the shifter plunger on the LU because
I tried to force it into forward. My shift shaft is not a screw down,
it's just a notch like deal. Since down on the plunger is reverse, the
shift shaft would push the plunger down. Also, it would go back to
neutral because that shift just slides easily back. It would not fully
shift into forward because 1) It had no oil and therefore was trying to
lockup, this is not an easy gear to get in anyway 2) The shifter shaft
has come loose and could not pull the plunger up into forward.

I can get the unit to shift from R to N to F and the gears are all
lined up and catching. I assume the shifting is fine. l I'm going to
find a new bearing housing and new seals for everything, then put
everything back together and give it a shot.

I'm thinking of running it by a shop to get them to do a pressure test.
How much $ does that usually run?

Thanks, Jason