The boat supposedly has been used 50/50 salt / fresh. Overall, it also supposedly hasn't had too much usage - about 400 original hours (if the hour meter can be trusted).

As far as testing castings, are you suggesting I should disassemble the entire engine, and have the block and heads tested? If everything is ok, then since it is apart, it should be rebuilt I guess (heads reworked, bearings, rings, rods, new tin, timing cover & chain, etc,etc). I'm trying to determine if that is worth the $$ (don't know how much that will cost) considering the castings are '87 and could fail later on.

I'm getting the impression that I need to totally rebuild these due to the problems I have.

Yes sort of. I'm saying that before using any casting again, they would have to be carefully inspected. Even then you run the risk of spending large amounts of money rebuilding only to have a casting finally rust through. It's a gamble. My father in law boats on Long Island Sound. His exaust manifolds lasted 5 years, cast iron, on a new boat.