I was with my neighbor last fall when we ran up on a sandbar. He tried backing off before shutting down the motor. After restarting in deeper water, there was no flow from the tell-tale outlet. We checked the lower unit inlets for blockage but found nothing. We ran at low RPM's(1000-1500) for a hour heading back to the landing and the tell-tale never flowed or even dripped but the engine did NOT overheat. We verified the alarm function by turning the ignition key off and on. Shortly before reaching the landing, we ran it at WOT and normal cruise(3500RPM) and did not experience any problems, overheat alarm, etc. When we returned home, I removed the tell-tale outlet and checked it for blockage, then back-flushed the motor through the tell-tale hose while the motor was off. After reconnecting the tell-tale, we started the motor and everything seemed normal. We had good flow from the tell-tale and no problems observed. Yesterday, prior to launching his boat for the first time this spring, we started the motor on muffs and had ZERO tell-tale flow. After waiting a couple of minutes for the thermostat to open, we noticed smoke from the top of the engine block and shut the motor off. While no decals peeled off and I think the smoke was from silicon spray, the top of the block was too hot to touch. The ONLY water exiting motor was from exhaust relief port immediately below lower cowling. I felt warm AIR flow from the tell-tale outlet just before we shut it down. FYI, boat is stored in closed garage and we have no manual. Would appreciate comments on this situation so I can give my neighbor some guidance and a clue of what to expect. Thanks!