Re: 1983 Mercruiser 260 replace w/305??
While I agree with you (to a point) on going from a 350 to a 305 being a bad idea.... I don't agree with how big of a turd you think 305's are. I run a stock 2bbl 200hp 305 in a 3000lb + tri-hull and I'm pushing 50mph.

I do have power trim but still.....
They are great little motors... easier on the drive due to less tq but it isn't hard to get them to 270hp. IMHO a 270hp 305 is a much better option then a 260-270hp 350 since it's just plain easier on the I/O due to the 305 making 30 or so less ft lbs of torque but with the same hp as the 350. Your likely to get better mileage cruising with a 305 too.
WOW! I don't think I have ever "heard" someone argue the merits fo a 305 before. EVER!
In a pre vortec era - the better choice is a 4.3L - same power less weight on the stern. the 305's only had two advantages here - they sound sweet, and one less thing to worry about when you upgrade to a 350, the motor mountsare in the right place to start with.
The 305 is easier on the drive...... true BUT:
A standard 350 is well within the torque capacity of an alpha drive. Keep the lube changed, the prop submerged while running, and keep the water on the outside of the gearcase and there will be no discernable difference in MTF by "removing" 30-40 ft/lbs of torque.
305 gives better cruise economy.....based on what?
30mph in any given hull will require a set amount of hp to maintain. That amount of hp will requier the same amount of air and fuel, no matter how large the engine is or how fast it is spinning to produce it. Of couse you can argue that the smaller displacement engine will most likely be running at a wider throttle angle and would therefor suffer less pumping loss, but in a boat you will never be able to measure it. It is just too small of a difference. This is again where the 4.3 would be a better choice than the 305, because of the weight savings(100lbs lighter) This is enough to produce results that are measurable, but they are still small enough to be considdered insignificant. On my boat (an 18' BR - vhull) 100 lbs equals a little less than 1mph at WOT. This is a little more than a 2% gain. At cruise speeds, I have no data, but assuming the same 2% gain in hull efficiency(it would actually be less) we are only talking about less than .1mpg.
Check out some of the boat building site, you can find charts where they show the effect of weight vs hp. small changes in weight = large changes in power for the same results. Of course all of this assumes we are talking about planing speeds, but I don't think Regal ever made a displacement hull.
OP - exactly what kind of boat are we talking about here? If this is just a small runabout, then the 305 will be adequate, after you compensate for the lost power by replacing the prop and/or regearing the drive. And don't forget to swap the head gaskets and core plugs, or you will be pulling this engine back out very soon. If this is any kind of cruiser, then all of the "turd" comments apply.