Your issue is giving me flashbacks to an older boat I had. No problem with the stern tube, but, like in your boat, the deep bilge sump was filled (with softwood and what looked like some cement powder) and then it wasn't exactly fiberglassed over. Nay, instead just plain, unfilled resin was poured in place for a top. No reinforcement. I bet that cracked when the boat was about 6 months old....
This was right under the engine and over the decades fuel/oil/whatever had dripped down onto the resin lid, and seeped through the cracks into the wood below. And sat and fermented for decades. Yep, it reeked. I ended up digging it all out, fairing it, and gaining a deep sump with no "false lid." (Not saying that's what to do in your situation though since you have more going on there.)
Not exactly your situation but close enough to bring back nightmares.
BTW, although sawing lengthwise on a cutless bearing is done, most yards know not to just keep sawing into the boat! Or if they do, they don't just ignore it and move on to the next job. Shame on them!