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Engine swapping compatibility?

I currently have a Mercruiser 5.7L 250hp sterndrive with alpha one gen one outdrive. Started running very bad. Two plugs were black and dripping oil. One cyl at 30psi, three at 90psi and the others at 125psi.
I'd like to down size the motor with out having to replace the out drive if that's possible. Would a 5.0L or 4.3L work.
Thank you.
 
5.0 will bolt right in, 4.3 will accept the rear housing but you will have to fab up new front motor mounts. Drive gear ratio will need changing to 1.85 . The 1.50 is a bit much for the 5.0
 
Fuel is like number 45 on the top 100 expenses of boat ownership. I would just accept that as part of the fun.

I'd pull the heads off that engine. You probably need a set of head gaskets and have the heads rebuilt. Lower ends on marine engines are usually pretty bulletproof.
You can probably find a good used running take out if you put out the word at your local marine shops and marinas. Here in the Mid Atlantic we have many marine salvage yards where these can be had for a few hundred.
 
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