That one is much older than my 6hp and 15hp mercs, but I was having the same trouble. On mine, I had to release the shift shaft from up inside the housing before the lower unit would drop out. I had a thread on here not too long ago and it was answered very nicely by some small outboard geniuses (this site rocks), and there are some pictures about it on that thread. Look for "dropping lower unit on 15 hp" in the title. But, I don't know for sure as I haven't really worked on a merc of that vintage, so hopefully somebody knowledgeable can chime in. But this might help...