Ok, ran into another problem when I went to start bolting everything back up. I guess it is called the 'collar bushing' (That is what I see when I look up the part number) -- I don't see how it would fit with the spacer? There is a recessed area in the upper that part of the bushing fits into, but it would stick out too much for the spacer to fit flush. There is a recessed area in the lower that it would also fit what appears to be halfway into, but still not allowing the spacer to fit flush their either. What gives?

Just had a thought - maybe I just put it all together, and the collar bushing will press the bushing in the spacer up, and then everything is good. Sound correct?

I don't know what part you a talking about. Post the Merc part number

Genuine Mercury & Mercruiser parts. GEAR HOUSING(BRAVO ONE)
Genuine Mercury & Mercruiser parts. DRIVESHAFT HOUSING AND DRIVE GEARS(STANDARD)

23-86738 is the part number on it. It is #17 in the bravo one diagram: 8m0046302

i would post pics, but I’m too new to the forum.

That stays with the lower and should be flush with the lower case and then the center raised section seats into the spacer.