i had a similar problem on a 1973 110 model (which is a 9.8 hp or a 7.5 hp, which except for carburetion an reed valve are the same motor). i know the cooling system on these pretty well. i also have a 1979 9.8. if i remember, (can't look now as it is in deep storage) it may have had very similar cooling system except my model 9.8 had a thermostat. so there may be some additional differences. now your problem, i tested my tell-tale with the thermostat in and out, hot n cold etc. the thermostat had no apparent effect on the tell-tail. (had a good tell tale always, an remember this is my 9.8 , it does not have any cooling problems) ..(there is a by pass in the thermostat area, which could account for this. . now to tell you about my 110 (which i had similar problems as your's and I did similar tests, but keep in mind ithey may be different, but i think the addition to the thermostat may be the main and primarily the only difference), sure someone will get on and state that the impellers are a different part number cause the drive shaft is thicker or thinner, but that is irrelevant to telling of similar problems of same type motors.
My 110 in the bucket test with the water pick up tube connected, it shot real high at similar rpm’s as yours, mmm like 7 feet or better. Put it back together same drip through tell-tail . I had to do a autopsy of the motor, took off power head etc. here is what was happening ,,there was a restriction up at the top of the water tube because last person who changed pump had the water tube fall out and he unsuccessfully tried to replace it from the bottom, (which can be done if you know what your doing. Added on to this he allowed the copper water tube to bend the wrong way so he could bet enough height to be able to push the lower unit up for installation, this caused one hell of a bend into the water pick up tube.further allowing ( in the top connection of which he did not have it into the grommet it is suppose to go into.so it was at an angle had the grommet pinched, the water pump when he then used the boat for fishing was working so hard it melted some of its housing, the exhaust pressure when running (the exhaust has some access to the cooling system and the adapter plate cooling ports and the small drip drain holes in the other parts of the cooling system was all getting back pressure from the exhaust pressure when running the engine at higher throttle, it sent hot exhaust gasses up into I waser/cooling system that was starving for water and the exhaust unburnt oils ans gas mixed with the water, made this murky mud that when you shut the engine off would just dry out and clog things. So he did not know how or why he screwed up and put the motor on the shelf for 20 years, pretending or hoping it would go away. Then I tried to run it and had similar results that you have,
Coulpe things you can do ,,re-do bucket test with a copper tube inserted into the bushing sleeve of the output of waterpump. (mine was 5/16 tubing which was hard to find, air conditioning guys use it so I asker one of them)If it is fine then take yoyr thermostat out as you go through thiis process. There is a flush port on back of the housing of your motor. You don’t have to buy a special fitting to use it,, what I did was (it is a 3/8 standard hole it is not pipe thread. (got a plastic toilet seat screw, cut the head off of it and drilled a hole through the center ( I don’t have a drill press so plastic was easier) theh gizmo it up with a cut off washer machine hose (leave one female connection on) a metal and a rubber washer (auto adjustable clamp and shoot some water through with garden hose this flushing area, you can run your motor at mmmm say up to 1500 rpm doing this but still have the lower unit in your test can of water also. Also that fill your bucket up to just above the anti cavitation plate is not to my likein I think you need 4 inches above it in a testing scenario. If you bdon’t get water through your water system through that flus port.. run some wire up through it, reconnect the water pressure etc. I had to do this about 6 times before I got it cleaned out. Apparently most people never flush through there if always in fresh water so the vertical port collects debree an clogs especially with this type engine problemt
Couple other things there is a plastic bushing at the top of the water pick up tube that seats into the adapter plate. Sometimes they melt if the motor was run hot. So now you have to take the powerhead off. Not a big deal then you can assemble yoyr lower unit with everything open to make sure it is all connected correctly then put powerhead back on.
One other thing sometimes when this all happens as in the pump melts up it distorts the guide tube at eht top of the warter pump, the exposed part of the tube swells up then upon reassembly of the lower unit there is a gap inside the guide tube and the grommet at top of water pump. You squeeze it all together and you think you have a tight seal and it is letting water come uo and out the guide tube area.
Now remember this is all what I found out after I did a bucket test which shot a lot of water, then I put it together and got like nothing out the tell-tale but a lil drip and some smoke.
Good luck