Went and got my boat out of storage and started it up in the driveway to de-winterize and make sure everything looked ok before taking it out.

Should water be coming from where the red circle is?

It ran and started up perfect. It maybe okay and I am just being a little over cautious, but I don't remember seeing that before ...

is it doing wile running

See the black hose running out of the motor up to the boat.  That is the water line that runs to your water pressure gauge.  It looks like you have a hole in the line or the plastic fitting that it connects to.  Find the hole and fix the leak.  The only down side with running it as is, your gauge will not work correctly.

Yes it is doing this while running.

I thought the measurement for the water pressure was at where the motor exhaust the water?

I am interested in the correct answer to this also. I noticed this exact thing from my 1999 Mercury 125 last Saturday. Same situation as you, brought it home to de-winterize and noticed water coming from here while running on muffs. Searched the internet and my repair manual, nothing found. Near as I can tell, that is the shifting shaft going thru the hole? Could be wrong?

-MK

Yes it is doing this while running.

I thought the measurement for the water pressure was at where the motor exhaust the water?

I think he's talking about the line that sends the water to your water pressure gauge. And the water pressure is "measured" in he block

Hows your water PSI and that speedo hose only has water in it when your on the move