I have a Mercruiser 260, with an HEI in it. How would I wire the shift cutout for this distributor? The switch I have is normally OPEN, so I can't simply hook the positive from the ignition switch to the distributor onto the shift switch, or it would never get power.

Wire the switch to ground the - side of the coil when the switch activates.

So basically the electricity chooses the path of least resistence and grounds out, instead of going through the coil, thus preventing ignition for a split second. That makes perfect sense. Is it one of the three wires going from the internal coil to the rest of the distributor then?

Yes, one side is positive, one negative.

wouldn't that create a dead short on the pos side of the coil? it would only be a split second when the switch activates, but it doesn't take much to draw 1000A out of a marine battery through a 18ga (or so) wire. it probably wouldn't cause many problems, but if that switch gets stuck for some reason, then you could catch your boat on fire when that wire fries. my recommendation would be to wire a relay to reverse the polarity of your switch. essencially, you will be making your no switch a nc. that way you would actually cut the pos feed, instead of grounding (dead short) it.

Would a better idea be to just put a fuse inline with the wire? Solves that problem, no? Do you know which wire I need to cut? Haven't got the motor started yet, but I'd like to wire the shift cutout asap. Boat is 99% done!

the fuse would blow every time the switch activated and defeat the purpose. if anything, you would want a resistor, but that resistor would drop the voltage on the other side of the wire, and lower the coil voltage. ideally you wouldn't want to do this. really all you need to do is buy a small relay from any auto parts store ($5 max), and wire it in to open that positive path to the coil whenever the switch is activated. i did this on an older boat i had that had the same issue.

The switch is normally OPEN. So I'm not sure how I would wire a relay on it.

No, you short the (-) (negative) side of the coil to ground through the normally open switch. The coil charges when the negative lead is connected to ground, only when the connection is broken the electrical field breaks down and the secondary side fires. If you short it direct for a few moments it just keeps charging, and does not fire the secondary so the engine stumbles for lack of spark.

PROBLEM: Shift cutout. The shift cables are adjusted so when I shift, forward is forward in the lower unit, and reverse = reverse, and nuetral = nuetral.

However, the shift cutout lever NEVER MOVES, and NEVER ACTIVATES the switch. Why? I am pretty mechanically inclined but i do not understand why or how this is supposed to work. The boat shifts into gear fine, but the cutout lever and switch are doing nothing whatsoever.

3am. Going to sleep now. Tomorrow: Life jackets. Change oil in lower unit. Cover batteries. GO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!