1988 3.0L Cobra stalls at idle while in gear after ~30min runtime

[ThreeWholePunch]

Hi Folks,

Problem: The engine performs well, however after 30min of runtime it will stall if I drop to idle speeds while in gear. I can restart the engine and run at idle (sometimes could stall), however, it is when it is in gear that it can no longer idle. in other words, I restart the engine, go into gear, and then stall. I must wait to let things cool for an hour or so before I can try again. Even so, there is hesitation, I need to finesse the throttle JUST SO in order for it to eventually agree and continue on. Once I get past that I can continue on.

I'm leaning towards believing this is an issue with the upper or lower gear housing, perhaps friction-related once parts heat up. Heres why:

1. Last year I replaced the distributor cap, ignition coil, compressor, and points.
2. This year I rebuilt the carb, replaced the alternator (was outputting 15v), replaced drive belt, new ignition coils, new spark plugs, new engine oil, and new lower unit oil (80w-90), new T-stat, set timing appropriately, and set idle rpm to 500-600 per spec.
3. I checked compression, cyl 1-4 165-160-132-160 respectively. Somewhat concerned about cyl 3 reading however according to seloc manual it is just within spec.
4. This year I also tightened the shift cable as the lower unit was making clanking-almost-like-a-bell sounds when I tried to put it into gear.
5. I drained the lower unit oil for a second time earlier this week and it smelled burnt. Attached below is the photo of metal shavings on the drain plug, which looked the same both times i replaced the oil this year, and IIRC oil smelled burnt both times as well.
6. When i drained the oil, it's not exactly 'milky', it's just more light green than translucent green as compared to new oil. Perhaps I will change the oil again and take pictures next time.

I'm planning on taking the upper and lower gear housings off the boat to inspect, but I was hoping to get some opinions from here before I do so as this will be the first time I've worked on a lower unit of a stern drive and I could be barking up the wrong tree. Unfortunately no marine mechanic around my area has any interest in looking at it.