Here is the new shaft seal above the old one. The new seal is a traditional type that uses four rings of oakum (flax impregnated with wax and lubricants) to keep the water out. Theoretically it can be adjusted and/or repacked without hauling the boat. It would be messy, but doable.
Above you can see the score that may have contributed to the "dripless" seal's leak. However, after much head scratching, we think maybe it was more of an adjustment problem.
Our V drive has a large rubber flex coupling that we think may have allowed the shaft to move/pull forward just enough to let water in. There was a hose clamp just forward of the PSS seal, but maybe it should have been tighter. We might have been able to adjust it, but we are happy replace the cutless bearing and shaft seal especially after talking with the yard manager about dripless seals.
He told us a story about a fishing boat that quickly sunk because of a shaft seal failure. Ask around at any repair facility; nearly everyone will tell you a story about this; failure is usually catastrophic.
Here's the old bearing and the new Morse bearing. We cut the old bearing out with a Sawzall. The new bearing will be chilled to make it smaller before pressing it into place. Set screws will hold it there.