Re: 1966 johnson - 3 more questions
There should be a hole, but usually it's up higher than that. 6 or 8 inches. I'm not certain about your model outboard though.
The end should be tapered. It should not have plier marks.
You can make the gasket if you like, just make sure you include all the various holes and don't block something important. If you've got it, I would just use a paper gasket with a little sealant, but the cork will do in a pinch. Cork works better where oil is involved.
Is there any evidence your outboard started life as a longshaft and was converted to short? FDL-nn model number? That might explain the plier marks and the hole being so close to the bottom.
EDIT: I'm not sure what you mean about the impeller. The hub is supposed to just slip over the driveshaft. Is there excessive clearance there?
Home depot o-ring will suit just fine - whichever one fits. The o-ring is important to keep water out of the splines and grease in. If it fails, the driveshaft will often rust into the crankshaft making removal impossible. Go light on the spline's grease on assembly, but make sure it's there.