The first step I would do is start from the cutlass bearing.
1* (1) check shaft movement in the bearing. (2) look at the bearing ,check bearing wear, is there wear at 12 o'clock /3 o'clock, 6 o'clock , 9 o'clock. If you see excessive clearance or out of round wear this should be noted. Next check shaft runout. checking shaft runout when it is installed is not a perfect measurement but it will give you a good baseline as to if the shaft is "usable " If I see a out of spec runout it is time to pull the shaft and check it in v blocks or a lathe.
If the bearing and shaft appear to be ok.
2* Check to see if the shaft is running in the center of the log. It "must" run in the center of the log. When checking this I remove the packing gland or dripless seal from the log so I can confirm it is in the center of the log. The initial measurement is done with the coupling made up ( shaft coupling to reverse gear coupling) you will be able to see exactly how the shaft log alignment is. "Needs to be centered"
If it is not centered that needs to be corrected . All running gear must run in a straight line. Center of the prop to the center of the reverse gear output shaft.
3* Uncouple the shaft coupling from the reverse gear coupling remove all the coupling bolts. Using a few cut 2x4 's or 4x4's and some thin pieces of wood for shims for blocking support put the shaft in the center of the shaft log, place the supports under the shaft to hold it in that position. Check for parallel alignment of the coupling rims. I use a straight edge laid on the rim this measurement should be close. If not the shaft is not running in a straight line cutlass bearing/shaft log/ reverse gear shaft center.
4* Install two of the coupling bolts draw the couplings together. Leave a .020 gap between the couplings by putting a .020 feeler gauge in-between the couplings. Draw the couplings together until a slight drag is felt on the feeler gauge at 12 o'clock. now check the gaps at 3 o'clock, 6 o'clock , 9 o'clock . you do not want to see a variance in the measurement of more than .004 total if you coupling is 4" or larger in diameter. .001per inch of coupling diameter up to 4". I prefer .003 or less when I do a alignment.
This is how I would check the full running gear when there is an issue with premature shaft wear, cutlass bearing wear, shaft seal failure or reverse gear seal and bearing failure. When changing a cutlass bearing I am not a fan of using a bearing press and leaving the shaft in place. I know it saves a lot of time but it is hard to see the condition the shaft were it rides on the bearing. I have seen cutlass bearing replacements done and there is still to much clearance beause the shaft is damaged where it rides on the bearing. When I replace a bearing. I pull the shafts, shaft log glands, and couplings. All components are checked for runout and wear. This takes the variables out and then alignment is done.
My question is why did he drop the engine 1 ". What changed the alignment that much? Engine mounts bad? I doubt that much! Coupling installed correctly. I have seen technicians install couplings on tapper shafts and not "dry fit them" the coupling should be installed with out the key. The coupling pushed on to taper as far as it can go. This is the draw, it should be marked on the shaft, and the coupling removed and key installed. Repeat, the coupling should be at the mark. If it is not at the mark it is hung up by the key. When the coupling nut is tightened it can cause the coupling to be off center. This can cause issues with alignment.
Alignment can be done on the hard. When doing reverse gear work shaft work, any type of work on the hard it is a general practice when finished to do an alignment. It will be close and in some cases does not change when the boat is launched. I called this the rough alignment. When the boat is launched and has set in the water for a few days and the hull has been evenly supported by water. A finally alignment check is done. In my experience there is little to no change in fiberglass boats or metal boats. Wood boats will see move changes in alignment when launched.
I have found that starting at point A then point B, C and D when troubleshooting an issue like this is the best method. you don't want to chase the issue in a circle you want to chase it in a straight line.
Brian