If you found no metal on the drain plug of the lower unit, it is a good sign. If it was just a little milky, change the gear lube. You will probably eventually need to have your drive resealed, but that is secondary to your other obvious issues. Although they could be part of the problem.
The item in the picture could what is left of the claw washer (#18), that locks the gear case nut (#7) and holds the guts of your gearcase together. If it is, your gear case nut may be gone too. NOT GOOD! It could be something completely different.
http://www.boats.net/parts/search/Honda/Outboard%20Engine/1997/BF45AM%20LRTA%20MARINE%20ENGINE%2C%20JPN%2C%20VIN%23%20BLAF-1000001/PROPELLER/parts.html The thrust washer should be pretty thick. You should also have a spacer (stainless about 3/8" thick), a washer and a nut. See the parts breakdown.
Without the thrust washer, the prop was probably grinding against the gear case nut.
It is possible someone put a prop on it that is not compatible or is an aftermarket.
Are there any numbers on the prop?
How about a picture of the prop and a picture of the propshaft going into the gearcase (to see if the claw washer and gear case nut are still there.
This sure looks like a real potential for the source of the grinding.
You could run the motor without the prop...put it in gear and see if the grinding goes away. If it did, you are probably on the right track.
Mike