Hi Jeff OK, tried that. From forward gear, about an 1/8 of turn CCW puts it into neutral. Another 1/8 of a turn CCW puts it into a second neutral. I can feel the bumps/detent positions. Continuing to turn it CCW, about 3/4 of a turn puts it back into forward. If I spin the prop in neutral, it pops into forward by itself. Is this what the plastic cam prevents, and is it spring loaded so it fits into the two grooves on either side of the shift rod, seen in the first pic? I'm off the wall guessing here, but I figure those grooves are there for a reason. I don't have a parts diagram for this engine, but I'm looking at one for a 402, and it shows a washer, a spacer, then the reverse cam lock, in that order from the gearcase oil seal up. The rubber washer is there.
When the shift rod is in the reverse position, the prop is no harder to turn, there's no grinding, so I think the reverse gear must be OK, and not stripped off? The shift rod will turn in either direction, and the results are the same. Maybe the shift dog is stripped off? Sorry for so many questions, but I've never torn a Merc apart. Old split case OMC's, even the evil old 60's OMC electo-magnetic shifts, but never a Merc. I can read a parts diagram, and can see how the shifter works, what pushes on what to get gears engaged. It seems like either something is broken, stripped, misassembled, or just missing in there, and the shift dog isn't going back far enough to grab reverse. I think it's time to learn about the innards of Merc gearcases!!!