This is an interesting question, and one that will lead you down
several paths.

The choice is not simply limited to 'W' or 'Y', there are a host of
other, well respected marine diesel engines in the 40 hp range.

For the latest technology (vis-a-vis emmission standards), the
Volswagen SDI 40-4 looks really impressive:

http://www.vw-m.de/index.php?L=1&id=10

Trouble may be availability and parts, especially in the US.

Vetus den Ouden marinizes Mitsubishi engines, and Vetus has a very
good US distribution network.

See: http://www.frenchmarine.com/Product.aspx?PID=617&CID=20

Beta Marine, Phasor Marine and (I believe) the Universal subsidiary of
Westerbeke are Kubota blocks which is why all of their '42 hp' engines
have exactly the same bore / stroke / displacement.

Your choice between these three then comes down to ancillary items,
like size of alternator, etc and ultimately, price.

I saw these guy at Annapolis last year, and was impressed with the
construction :

http://www.lombardinimarine.com/inglese/homeing.htm

(see their LDW 1404 M), and there are quite a few distributors in the
US.

And we haven't even gotten to Volvo...

Repowering always involves modifying the engine bed, since the
'footprint' of the replacement engine is never the same as the old
beast you're removing.

Have fun, and let us know what you decide. One last tip: Visit a
large boat show, and get a 'show price' - could save you 10 - 15% off
what your yard might charge...

MW