I was getting there!! I pulled one valve cover but then with everyones suggestions to replace the exhaust gaskets I went in that direction instead...Then of course I took it to a shop. BOTH valve covers are coming off tomorrow if the shop cant determine the problem..
Of course none of this makes sense based on where the tapping noise is coming from--directly underneath the distributor!

THANK YOU!! Those are the suggestions I was looking for!

--We did pull the cap and the rotor--the rotor was broken and the cap appeared to have been scored/worn away by the rotor. If the gear has cracked teeth I wonder if it could cause the rotor and cap damage we witnessed.

What kind of problem does pulling the plug wire's one at a time isolate with these symptoms?

You can isolate the problem if it is on a certain cylinder. The noise will be less pronounced. I have had rocker studs break. Before pulling both valve covers I would pull wires to tell me what cylinder had the problem. It would back fire through the carb when the chamber ignited. Same thing if it was a rod or something with and a specific cylinder.

It will probably rule out more things then solving his problems.

The damage in the distributor is something you need to figure out. I would look very carefully at all components, pull the shaft from the distributor, inspect the lower and upper bushings in the distributor, shaft, everything. Also check the teeth of the drive gear on the cam. Something caused the damage to the rotor, that is very uncommon.

That is exactly why we did it

Ok, well my shop brought in their engine builder and after more testing including taking the oil filter apart (no issues, the oil filter didnt have any metal shavings in it) its been determined that the tapping noise is definitely coming from inside the bell housing and is most likely loose flywheel bolts. Im pulling the engine on Monday and will have a look....Its amazing to me how many things make the same sound inside an engine bay and how many hours and tests it can take to determine what is really going on.

Metal can be a great conductor of sound. Buddy of mine heard what he thought was a lifter tapping/ticking. When he got into it, it turned out to be a con rod bearing that was hammered flat by detonation and had mashed out like a penny on the railroad tracks. The tick was the bearing hitting the main journal.

Well, we pulled the motor, unbolted the bellhousing and....all the bolts were tight! We did notice that the motor mounts were loose and that one of the spring washers was sitting in the bilge...
Upon reinstalling the motor (and properly aligning the drive) the tapping noise seems to have disappeared. I havent taken the boat out and run it yet (thats happens tomorrow) so we will see how she does after a full shakedown run.

i had a similar noise issue it was my lower inspection plate on the bellhousing. got it out with out pulling the motor but was not easy.