I was thinking you had to have a poor seal at the top and/or bottom, but your picture didn’t seem to show it. The impeller looks to be at least at the top, if not a bit above the cartage. Not having any experience with those, I felt it best not to comment. It probably wasn’t an air lock, but the problem with doing more than one thing at a time is you don’t know for sure which one was the solution. I have a lot of experience doing just that. Seems that after thinking it through, you figured it out anyway. I narrowed an impeller for a Mercury but didn’t use it. It exposed the brass center. I couldn’t see where running metal to metal (brass to the aluminum cartridge, or cover) was a good idea. I have a picture of it somewhere but cant find it.
A "Boathouse Repair" is one thats done without having tools or the skills to do it properly.