Ouch! That looks serious.

Garth, you may want to send those pics to the person you are talking to at HydroTec.

A very good outboard mechanic who took care of my V6 Mercs said the first order of business is to verify what caused the power head to blow. Until that is known a replacement power head will likely pop for the same reason.

You seem to be thinking this through with a level head and looking at all options. I believe it will work out just fine over time.