rollmops, I gave it a couple of days and the oil still was discolored, I pressurized the gear unit and could tell some air was leaking around the seal behind the prop.
Before I put anymore time and money into the motor I decided to take it out on the boat today and see how it did under load, I have to say it preformed like a champ, it almost made my little 14 ft. V-hull stand on its end and I didn't even have it at full throttle.
So I will be replacing the prop seal and water pump for starters.
Its odd the carb on this motor doesn't have an adjustable high speed needle, it has the stem but it just plugs the hole, but the motor preforms great.