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At one time folks did not like the idea of a big outboard hanging on the back of a boat.-----It was deemed cheap and unreliable.-----The L-drive was a way of hiding the outboard.-----How times have changed !
Pressure test and see exactly where the leak is.---Then repair that leak with say ----" lumiweld" ---brazing rod.----Better yet is to replace that housing.
Obviously it had water in it and froze.----Any pictures of the inside.-----I would say that housing is warped to a degree from welding.-----Or mating surfaces are damaged , resulting in the leak.----Easy fix for me here.
All depends on your budget I guess.----Cut out that damaged part.-------Make an exact piece to fit the cutout.-----Keep that part in place with a plate inside the boat with 3" overlap all around and some rivets.
Air bubbles.-----Let motor sit for a week before checking oil in lower unit.----Check or have shaft checked for run out.----Destroying a stainless prop usually results in a bent propshaft.----A shop would use a dial indicator and not eyeball it.