Joel,
Here is some pics of the -3" shorty. I marked the side of the case at 7 5/8". You can see it lines up with the water cavity at the top of the housing (mating surface). Depending on how far down from the mating surface the hole is it could be in two different cavities.
One picture shows the water passage and an oil passage (inside the circle where the oring goes). If you look at the inside of the water passage, it turns as you go deeper. Your lower is taller than this one so that turn should be deeper into the housing. I suspect that it goes into the water passage. You said you did not find any oil leaking there so I have to believe it is in the water passage.
Have you tried to put some air to the hole? Or put some air to the water pick up slot and see if it any leaks out of the hole. If it is in the water passage, I would just weld it back up, but try not to over heat anything while doing it.

I hope that helps,
Dick

Thanks Dick,

This is reassuring. I will try what you have suggested and see what happens. I am also going to contact imco and see what they say as well now that I feel better about it. I figure I have 110 days and counting to get this straight for boating season. I appreciate your time and knowledge looking into this for me. I will keep this forum open and post what the outcome is for anyone that may experience the same thing in the future.

Joel

You're welcome Joel. Let us know how it goes.

Dick

Ok guys got the word from IMCO finally about this hole. It is a sand casting hole that has popped out. They said weld it up and go on with it no problem as that is what they do after casting. Just gotta figure out what the best replacement stock will be and cut a plug to fill this thing. I was thinking about just using a hole saw and resizing the hole then cutting a plug with the same bit and sticking it in there. Anybody ever done anything like this?