Re: Mystery to be solved - reward to whoever gets it!
RESULTS:
OK, replaced incomming hose with clear hose, started engine, checked hose,
AIR BUBBLES BIG TIME ... LOTS OF THEM!!! It actually looked like it was about half water and half bubbles ... hose never did have a chance ti completely fill bubble just kept on comming. I assume it isn't supposed to be like that huh?

So it is sucking air somewhere and not getting an adequate amount of water ...but my flow tests showed it was ... maybe it only sucks in bubbles when it is under a load and during the volume test it isn't under any load (pushing load) .....confusing.
Before I change to restrictor gaskets I want to find this leak.
Now I checked again and the water in the tub actually only comes up to the bottom of the cavitation plate but well above the intake screens. So I would think I shouldn't be sucking air since it is all above that.
Now, here is another thing, when I took the hose loose from the tstat housing in preparation to put on the clear hose ... I blew into the hose expecting to hear it bubble up in the tub of water. It didn't I could blow into it and I heard the air escaping somewhere. I then put on the clear hose and did the test.
I suppose the point where I heard air escaping is the point where it is sucking air ...but where could that be? The hose between the bell housing and transom is new.
I guess it could be the O rings on the tube which goes between the pump housing and the upper gearcase or maybe the face seal on top of the pump housing.
I think maybe it is time to pull the drive again and look for this leak.
Anyway I think I am on the right track now.
Thanks ... any other ideas are welcome.
Hope I find something obvious in there.
Kirk