You are using an automotive starter solenoid, aren’t you? That’ll fry the mercury switch in a heartbeat. As you have figured out, it is in series with the solenoid coil to prevent the starter from running (starting) at high throttle settings. However, the car solenoid is different inside. On a car solenoid, the second small terminal is not in series. What it does in this case is shoot a full 12V whallop to bypass the car’s ignition resistor for a hotter spark while cranking. Put it on a n OMC outboard and that full 12V whallop goes to the mercury switch and zap!
I think you are asking about the drain hole for the drive shaft isolation tube. Yes, water will run out of that hole. Water will spray out of the exhaust relief hole in differing rates, depending on thermostat state.
