well i winterized my boat a few weeks back and when i went to drain the L/U oil i saw this....

uhhhhggg i dont think that is what its supposed to look like....could this be a leak in the seal? if so what seal? and how does water effect my motor? when i bought the boat the guy had changed the L/U oil right before we went on a test drive, and it checked out....but now it doesnt look so good....would it even be worth it to service this motor (Johnson 20hp 1973?) or can i continue to run it as long as i dont let the oil/water mix freeze?

Thats why I always say be leary of a motor that has fresh LU oil when check it out. They change it so you don't see that. Yes, that is water in the LU, and that's why you always drain the LU before winter to check for that. If left in, it would have rusted everything and probably cracked the housing.

Your's happens to be a very easy LU to work on but there is a good chance you will need a new drive shaft. You can take the LU off and pressure check it in a bucket of water, or you can just go ahead, take it apart and reseal it. Get you one of those Clymer manuals and it should show you how to get it off and apart. That rubber spaggetti seal going around the case halfs can be bought at the dealer for a few bucks. You will also want to get the O-ring and propshaft seal. After you take the water pump off, you can slide the drive haft out (after you have it appart). This is where you are probably going to get unlucky. Right below the water pin hole you will probably see the drive shaft is worn for about 1 inch pretty bad. there is a seal right below the water pump and just below that seal there is a caged bearing. This bearing is probably rusted up and no longer lets the needles turn. You can/should replace it if you are carefull knocking it out. Some of the older LU had brass bushings there but I think you will find a bearing in yours. You will also need to order that brass bushing the shift rod goes through and the O-ring under it. You have to remove that bushing to replace the O-ring and about the only way to get it out is to drill it out, (carefully). Usually after being in theire for 30+ years, they don't come out on their own.

One note, You might find a machine shop with can weld your drive shaft up and turn it back down at somewhat of a reasonable price.

Should mention, most likely the water is coming in around the driveshaft seal under the water pump.  If/when you take it apart, and that bearing is bad and the shaft is groved, that's probably the main source of leak.  the O-ring for the shift rods are another common source of leaks.  That's usually what leaks first, then the water rust the driveshaft bearing.  Causing it to eat the drive shaft so is wobbles and lets that seal leak.

wow....thanks, that was probably the most comprehinsive detailed instruction that i have heard about this...thanks again way2slow...i owe ya one

Other than the drive shaft, here's you a shopping list so you can feel for what the parts will cost.

375638 impeller

304754 gasket

304765 bushing

301877 oring

307563 seal

383829 bearing

309044 13" of seal

302493 oring

383757 gear case head assy,   this is the only way to get the prop shaft seal from the dealer.