Latest news - its running!
Bought a compression tester and found it was a little low (50 or 60) but fairly even. I read somewhere that you need to pull "like you're mad at it" to get an honest compression reading; I figured it was low but good enough to press on and try to get it running.
Once I flushed the lower unit with ATF and refilled with proper lube, I then bought a bunch of new parts (details below) and replaced the water pump. I decided to replace the entire pump, impeller, cover, and bottom plate. The replacement was cheap enough and I figured why not. Probably only needed to replace the impeller. Remember to open the little cover on the side/middle of the piece that goes between the powerhead and the lower unit and to loosen the shift rod coupling. At first, I couldn't figure out why the lower unit wouldn't just drop out - that was why (dumb move on my part). I was very careful to not do anything that would pull the driveshaft out of the lower unit. The top of the driveshaft looked fine (splines), water pump kit came with new grease for the top, but not a new o-ring. Got one at the hardware store; the old one was in surprisingly good shape.
At that point, I wanted to try starting it so that when I replaced the coils, points, etc. I could tell if I did something or if there was a bigger mystery to solve. I took one of the old 55 gallon drums from under my swim float (it was leaking a little anyway), cut the top off, and mounted a short pieced of pressure-treated 2x12 horizontally using 1 1/2 exterior wood screws and washers, and attached 4 1x1 pieces of pressure treated wood horizontally extending at a right angle from the 2x12 to tie the 2x12 into the side of the drum. This gave me a very firm mounting point, filled the tank with water, connected the new plastic tank and hose, made a 50:1 mix (give it extra lube starting up), and primed the fuel system. Fuel started leaking out of the mouth of the carburetor - figured a stuck float. Decided to try starting anyway.
The rope starter thing on top has a metal spring coiled inside, and that was a little stiff and would rub on the concentric circles, making a very scary (but benign) noise when retracting the rope. Squirted some sea foam in there, and it sounded much better.
The needle valve on top (high-speed) was turning, but not the one on the bottom (low speed). I put on the choke and started pulling. After a few pulls, it started to catch - wow. At this point, the carburetor had stopped leaking, but my sense was it was still flooded. I took the choke off, pulled a few more times; it made some encouraging noises but wouldn't catch. Waited maybe 5 minutes, put the choke back on, and pulled some more. After a bit of trial and error, I got it to catch, but it sure did run rough, and it had to be completely choked all the time to stay running. Even got a few backfires, which sounded at first like the driveshaft was "catching" into forward despite the shift being in neutral. That worried me, since the "clunk" was pretty strong and I didn't want to damage the splines on the driveshaft. I flipped the engine around on the mount, and did a few pulls till it caught a little and watched to see if the propeller was moving - which it wasn't. Didn't want to run it too much out of water, so I flipped it around and tried again. No amount of high-speed needle valve adjustment would keep it running without choke (which makes sense given it was not running at high speed). So, I viewed my first try as a success and went on to replace what I knew needed replacing.