I ground off the section of fiberglass below the outdrive down. And
feathered it out a bit. The plywood is a bit punky but still
resembles plywood. I dug out a couple spots that were softer that the
rest of the area. It's fairly dry since it has been 3 or 4 months
with the boat in the garage but I've got a fan blowing on it right
now.

http://home.earthlink.net/~jamesgangnc/cutaway.jpg

I'm going to leave the fan on it for a few days just to dry any
residual dampness. Then I'll soak the exposed wood with an alcohol/
epoxy mix. Follow up with some filler/epoxy to build the plywood back
out to the original level. Then lay 4 or 5 layers of glass/epoxy on
top of that.