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I’m not sure why you ground that linkage pivot screw that way, but it won’t work out well. You have ground down the pin so the linkage arm will be sloppy on that one side… I would just find another pivot screw or order a new one (new ones have an oring-older ones used a little gasket). And yes, SS mated against aluminum can create a corrosion issue but I have never seen any problems with this application. I have never seen a case where the threads got jammed with salt, unless of course the gearcase sat around with no oil, just full of salt water…And usually in this case, the skeg was split open anyway. The screw you have now will work fine for sealing and inspection purposes, but should be replaced prior to using the engine.
Back to the original issue of possible shock expansion/gearcase binding. You mentioned that the gearcase spun OK with the upper driveshaft removed using a screwdriver, do I have it right? If so, that seems to rule out the expanded shock concern. Perhaps the upper driveshaft was just tight in the new seal and bushing. In any event, it seems like Brent’s trick is a good one for sure when checking for this issue.
Now, it seems like there is an issue with the gears binding/grinding?? If so, perhaps this is what was causing the driveshaft to be tough to turn. And yes, perhaps you crushed the forward bushing alignment pin, or perhaps there is just some debris on the gear teeth. Unfortunately, it is probably best to pull the unit apart again and have a look. I totally understand how frustrating this is, means an hour of clean up time, new spaghetti seal and prop shaft bushing oring. It is amazing how such a simple gearcase can be such a headache.