As of the fuel and  oil coming out of the exhaust were it meets the lower unit it is normal there is no seal were they meet. But check to make sure your bolts that hold the engine to the lower unit are tight. 

Fuel spitting out of the carb doesn’t really mean its rich. Pay attention on how it sounds and how much it smokes you want it to have a little smoke coming out of the exhaust when at wide open throttle if you want the engine to live.

Prop I am using a Prather 225 seems to b fine on 30 percent fuel. And  30 thou of head shims For 50 percent and have my needle adjustment around 3.5-4 for 25percent and 6-7 for 50 percent fuel.

I would start with 25 percent fuel and try prop P 220 = 1.72 diameter X  2.6 pitch..

  A lot of boat engines don’t like to idle like a airplane engine, they usually have different carbs. A lot of  the boat carbs don’t have a low speed fuel adjustment  that is attached to the carb rotor or barrel whatever you want to call it.

If it is hard to start try unhooking the fuel lines(supply and exh pressureto tank) and pull the glow plug then turn it over with the starter for about 10 seconds or until there is NO fuel or oil coming out of it.

 Put the plug back in and hook up the fuel lines Have the carb opening around 1/8 open from the closed position then turn it over until you see that the fuel is just getting to the carb inlet(watch the bubbles in the line)then stop and hook up the plug power and let the plug get hot around 5 seconds then try starting it. The engine should pop a little or fire up after two or three tries. You may have to play with how much or how little throttle you need some engines like to start at about 1/3 to half throttle mine seems to like it at a 1/8 open.

 here are a few web sites for stuff and the K&B web site also

Hope this is of some help…

Jeff

Prop charts       http://www.funrcboats.com/prop_chart1.htm

Stuff  good company fast and fair prices              http://zippkits.com/~zippkits/index.php?main_page=index&cPath=4&zenid=4e62febb1f34e18b508f6eaa38f7700b

Fuel    http://torconitro.com/

K&B        http://www.mecoa.com/kb/index.htm

                 http://www.mecoa.com/acc/index.htm

Prop charts       http://www.funrcboats.com/prop_chart1.htm