Re: Lower Unit not coming off
First guess is steering linkage. Not familiar with your engine but the only things there, now that you have proven that you got all the fastners loose (allowing for the drop you are getting) are the drive shaft, water tube, and shift linkage.
The drive shaft is splined and has approximately 1" of engagement. If you got it half that it is not your problem.
The water tube is a press fit and that is into seals that do not present that much friction to the tube so it too is not your problem.
The shift mechanism is at the front of the LU and (should) consists of a short spline male of about 1" coming up from the LU which mates to a rigid shaft female just above the LU.
I'd have a good look at it and see if it looks like the splines have also separated by some amount. If not attempt to put a screwdriver in from the side of the LU and see if you can prise up on the female part of the coupling. If nothing acts like it wants to move your problem is the shifter coupling.
It would take some work, but if you can't free up the coupling with some penetrating oil, and afterward keep trying to prise it up, then you may have to go to the other end and pull the shift shaft. Probably a clamp at the top, inside the cowling, accessible just behind where the shift/throttle cables mount to the engine. You might undo the upper end and pull out the shaft with the LU. Obviously it will be long as is the drive shaft.
There is a bearing, neoprene seal and keeper on the bottom of the male spline in the LU so don't get too frisky with the pulling on that as if you pull it out of the shift cam in the LU, you will have to pull the guts out of the LU to get the cam mounted back onto the shaft.
HTH,
Mark