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After doing some more searching seems my post was premature, seems like on these small motors that it just rests in there.

It is a 1983 mercury short shaft. Here is a link to the diagram at boats.net but I can't tell if it should lock into something that would restrict it's vertical movement or not...

When replacing my impeller the driveshaft slid up with the impeller and this worried me since I would have thought it should have been secured somehow. Is this normal? Also there seems to be some space behind the prop. https://youtu.be/37kfTf3A6p4