1988 35 hp doesn't seem to want to shift

[The Force power]

Your going to need a manual and tools from drivers to pullers (some can be "home made") to complete this task.
That small piece you're talking about sits on the drive-shaft in the water pump area
The shims would sit between the bearing-carrier and the LU (inside) to ensure the right amount of backlash

 

[racerone]

Tooth contact pattern is as important if not more important than " backlash " in my opinion.

 

[The Force power]

Tooth contact pattern is as important if not more important than " backlash " in my opinion.

Absolutely, I just mentioned one as an example so I was not going into too much depth