Re: 79 Merc 9.8 bottom end locked up - pictures attached
You are looking at the secret in the second photo. Notice the inside of the LU housing is threaded. Between the shaft and the housing is the "spanner" nut that runs in these threads. You have to unscrew it to get at the lower unit. This was not Merc's finest hour as the housing being aluminum, corrodes and makes unscrewing the spanner nut almost an impossibility.
I think I saw an arrow in about the 2 o'clock position in photo #2 and adjacent to the arrow I think I am reading the word OFF. If that is what I am seeing, it indicates left handed threads, meaning you turn the nut CW to remove it, unlike the normal right handed threads where CCW is removal. Usually LH threads are only used in unusual circumstances where a rotating shaft/object MIGHT loosen the nut...like years ago lug nuts on autos were LH on the RT side of the vehicle (as I recall).
Once you get the nut out, the drive shaft and the rear bearing carrier, and R gear and the shift dog all come out with the shaft. F gear and bearing remains up front and the drive pinion gear is at the top of the empty housing.
I made a spanner wrench to fit mine, a much larger engine and the threads were RH. You can check the runout on the threads and determine which way they are pitched and thus whether or not you are dealing with LH or RH threads before you attempt to remove the nut.
Corrosion is going to be your enemy big time, not only in attempting to get the spanner nut out but in trying to pull the bearing carrier once you get the nut out.
Just remember you are dealing with CAST aluminum and it does not take kindly to prising on it...it is brittle and will break.
Since you are going to replace all the rubber parts any way, heat and penetrating oil will surely help as will running a thread chaser in the housing threads before you start. Give the penetrating oil time to work and use a quality oil. PB blaster is popular around here and works great.
Laddies and other mechanics on here can help you with some tips they surely learned over the years.
Good luck,
Mark