I took the piece to my local boat dealer and showed it to their drive guy. He told me that this piece is not a part of this drive. He thinks that it was a flat washer that got in there by mistake either before the drive was installed or when the rear cap was changed for the hydraulic steering. Thanks for the input and we will see what happens.

pull the drive off and check the shift linkage it looks alot like part of the lock that holds the cable. If it is then you probably have the shift adjustment way off also and wearing the shift cam and fork on the brass part of the gear. Also check to see if you have slop in the linkage where it is hinged in the back.