Sounds to me like summat's busted on ya saddle/lower engine mount.
You've not been out running 80mph in six foot seas in Sarasota bay have you?.....only kiddin
This 'dropping' combined with the gear section problem, sounds like it could be something to do with where the vertical gear selector shaft is exposed near the lower mount.
If I remember correctly, the vertical shift shaft runs down through the main steering tube, is then exposed for an inch or so, before entering the lower unit.
If for example the lower mount were buggered, your shaft would get all snarled up (and probably damaged) as the mid section wanked about in relation to the steering tube/mount.
worth a look anyway.