Engine dies when going into gear

[NCBOOGER]

1996 Mercury 125 O/B w/ Commander 3000 controls.
Ok, so I took the boat to the lake this weekend. Had a great time Saturday. Boat / motor performed great. Started some Boy Scouts working on their Motor boating Merit Badge. Cruised for about 4 hours. Called it a day about 4pm. Went back out on the lake Sunday to finish up. Cruised, stopped started etc 20+ times over a 4.5 hour period. Got out in the middle of the lake, 30ft water depth, shut it off for about an hour and a half. The boys practiced anchoring. Got ready to return to camp, engine fired right up, put it in gear and it dies. Several attempts, starts right up. Idles perfectly dies as soon as I put it in gear. Tried forward and reverse, same result. Dies putting it in gear. Nothing wrapped around the prop. Prop turns free and easy in neutral. Engine idles @ 700 +/- RPM at idle in the water. Engine revs to WOT in the water. Runs smooth through all throttle range. Thoughts?

(Needless to say, we got towed back to the ramp and were done for the weekend.)

Reading several things on the internet, I am getting more and more confused. Everything from checking compression to removing and adjusting the carbs, timing, spark plugs, neutral safety switch, adjusting the idle....If it starts and runs in neutral, through various throttle positions, can we not eliminate ignition, timing, compression, spark, fuel, air intake etc? Then to me it would be mechanical. Down in the lower unit?

 

[racerone]

Not confusing at all.----Note, motor only runs on the top 2 cylinders at idle.---------So this may be as simple as opening the low speed mixture needles on the top 2 carburetors.---But , allways start with a compression test.------Look for water in the fuel.---------Check for spark on all 4 leads.-------And winding it up in nuetral means abolutely nothing.--Motor will do that on 3 of 4 cylinders.