As a general rule, you need at least 2 hp per thousand pounds of displacement.
Most O'Days are relatively light, I'm guessing your 23 footer weighs in at
around 3,500 lbs or less. An 8 hp outboard would be more than enough power. A
9.8 hp engine is more than you will either need or take advantage of.

The 2 stroke vs 4 stroke issue is almost not relevant in these size motors.
The 2 strokers are cheaper, lighter, and more powerful per pound. Fuel
consumption is hardly an issue with a sailboat kicker engine. In my mind, the
lighter weight of the 2 stroke is the most important factor when such an engine
is bolted onto the stern of a light boat.

The question of shaft length is a function of how the motor is mounted. In
most cases, you are not going to go wrong with a long shaft, as long as you
follow the advice that someone gave about not having a shaft length that
exceeds that of the keel. As you know, it is easy for an outboard to cavitate
in heavy sea when on the back of a sailboat. So the longer shaft will help.
Also, you do want to be able to get the shaft up and out of the water when you
are not using the boat (unless you want to go to the trouble of bottom painting
it with a special paint for aluminum).