Its under warranty, send it back. Not sure if they'll repair or replace the unit as a whole. But it'll either give them the opportunity to look at the gears for that small chance of damage during a repair, or they'll be replaced if the unit is just replaced.

You whacked a rock that hard and the skeg is still in one piece?

phone call from warrantee manager : "hello, mr. psi ? we recieved your prop shaft back and it sure looks like somebody beat the sht out of it w/ a hammer ... "

mr psi : " [I]well... my buddies told me you would still warrantee it if i sledgehammered it a few times ..."

warantee manager : " sorry our warrantees don't include monumental willfull stupidity . just give us a credit card number and we'll ship your new one our right away "

That will fix it.....

How did you measure this runout, and at what point on the shaft?

This may be a given, but I'm new to measuring boat stuff.

While funny.... SEI will actually still warranty it.... They have a 3 year no questions asked warranty. I called them at the end of the season and told them I struck something and they said, it is covered just email is a picture of the serial number plate from inside the top of the housing.... They told me of I forgot to loft the drive and drug it up a ramp, they will cover that too.....

It was a freak thing I think. I am thinking it was a side impact. It happened as I was swinging the boat around in the marina canal, to put the bow into the wind. No damage, not even a nick to the skeg. But the prop is a mess.

Sorry brother but a true dead blow hammer leaves no marks on something hard like a prop shaft .

I measured it with a dial indicator that was attached to an adjustable arm, that has a set of clamping pliers on the other end. I took the measurement on the smooth part of the shaft directly behind the splined area. Ideally I would have measured the runout at the end of the shaft, but I needed the nut on there in order to have something to turn the shaft with. So given this, .010" runout wear I measured, probably is even more out toward the end of the shaft..