What are the benefits in doing this?

biggest thing is going to be corrosion protection in salt water, also you can usually keep temps more stable as well...Rob

I just bought the on engine kit from Monitor Marine Products. The plant is close to where I live they were great to deal with! I went out and picked up the kit. They were nice enough to offer a shop tour and allow me to talk with the engineering department.

This is a great company! If you take a shop tour you will see they do OEM work and most probably will recognize some of their products on popular engines.
Steve

I heard you still need to draw in water for the exhaust, that closed cooling is for the motor only. I would like to do this if it is fail safe

You don't have to, you can have a complete closed cooling, exhaust and engine. If you would like though you can just have engine closed cooling.

One of the biggest benefits to closed cooling on any marine motor other than the corrosion protection is the ability to keep the engine at a slightly higher stable operating temperature. When a high performance gasoline engine is operated at between 160 and 170 degrees F., the engine oil temperatures can be more easily maintained at around 190-220 degrees whcih helps with oil flow, protection and oil life. The more constant coolant temperatures keep the engine block and heads from expierencing thermal shocks and shifts which can raise havoc on clearances and metal stability as well as insure a more even cylinder and combustion chamber area temperatures which generally promote a more complete fuel burn and and allow more stable timing curves for the engine.
Contrary to some old beliefs that extremely cool engine operating temperatures are good for more power and engine life are generaly untrue. There are some auxiallary systems such as blowers,intercoolers, oil coolers and intake tract temperatures that can only benefit from cooler temperatures. A good closed cooling engine at that 160-170 degree operating temperature that is devoid of wild temperature extremes will give the best engine life and balance of power and reliability that most performance boaters look for.

A couple other bennys are your water pressure is perfectly controlled, the system is easy to leak test if trouble occurs and you can comfortably run aluminum heads in salt water. I've run CC for many years and love it. The list of benefits goes on and on.

Ok to run the full closed cooling system what needs to be done. Dry exhaust or different manifolds? I am pulling the motors over the winter and intend to hop them up alittle, one set of manifolds is rotted so I was looking to go with headers or cmi anyways.

Nothing is different about the exhaust, it is the same as a non closed cooling motor. The raw water goes through the exhaust after it has gone through the heat exchanger.