My suspicion is that the previous owner or a shop replaced the impeller and did not put it back together right.
I havn't had a mercruiser for years and the manual went with the boat but as I remember it's basically the same as any lower unit and the shift dog and shaft have to be in the correct position during re-assembly.
This was learned the hard way the first time I did an impeller!!!!!
Get a manual, pull the lower unit and redo it properly...I'll bet that the shaft is off by 45-90 degrees.
You might search some other sites, theres probably a tutorial on Mercs.
Good luck!
PS - While you're at it check the bellow(s) and seals and replace if needed....they should be replaced every 3-4 years under normal use.