Went through something similar with my E28-2, started with cutless bearing, couldn't get the transmission coupling off the prop shaft, smashed the stern tube in finally getting it off, had to rebuild the stern tube, then grind it to round. Sent propshaft to be straightened, new coupling to be ground, folding prop serviced. Lost a season. learned a lot, made friends in the boatyard. Did almost all of the work myself out of stubbornness.
Can you save some $ by going with a traditional bronze stuffing box instead of the dripless? They do have some advantages over the dripless.
Edit: While the rudder is off check for moisture content and any delamination - I also had to rebuild mine, but I know that going in. Check flange at top of rudder tube and replace packing, grease fittings.
You can save money by going to the traditional bronze stuffing box and, for anyone doing serious offshore work, I recommend it (Don't ask). You can make a traditional bronze stuffing box dripless or almost dripless if you are willing to put in the time to make the serial adjustments and if your prop shaft is true, your engine aligned and if the shaft is not already scored. I recommend the dripless mechanical systems for most folks who are weekenders and occasional sailors as this takes a lot of fussiness to make a traditional bronze bronze box dripless but has been worth it with my boats in the last 40 years. I learned this from the lobstermen in Maine. This process takes a break-in time and requires regular checking and adjustment for heat and leaks in the first 10 hours--if you are not able and willing to do this, don't use this kit.
Buy some very high quality black Gortec packing, the Syntec grease and the Syntec green clay dripless stuffing kit (about $60) and follow the directions to the letter. Here are the key points:
1. Make 2 Gortec rings as you normally would for a stuffing box. If it is not a new box make sure it is clean inside and out.
2. Make a ring carefully from the green clay.
3. Douse all the rings in the Sytec grease before putting it together.
4. Make absolutely sure that you have every speck of the old packing out of the stuffing box.
5. Insert the first black ring tighten it once to ensure it is seated (you should do this with any stuffing material) open the box again.
6. Insert the clay ring very carefully and follow it up with the final black ring tamped in firmly all the way around.
7. Hand tighten the stuffing box and set the holding nut. Do not use a wrench on this yet.
8. Run the engine in gear and see if it leaks. If it leaks, turn it by hand and see if you can get it to stop. If it does not stop leaking, use a wrench and tighten the box 1/8 turn (use a marker to make sure) at a time until it just stops leaking.
9. You will need to check it--and likely tighten it a bit as the packing breaks in. It will take a few hours of running and multiple adjustments to get the packing broken in and set, but it is worth it to me to have something I can repair at sea. The box will run a bit hotter than a traditional leaking box but it should not be allowed to run above 150 degrees for any length of time. If it is too hot to touch, you must loosen the box. Best to tighten it slowly to eliminate leaking during the first hours of running.
This system is not for folks who are not committed to closely monitoring the break in period and comfortable with wrenching and repeated adjusting for the first few hours. However, I have run my boats with it for more than 3000 hours with only an occasional droplet here and there. Boatyards will not recommend this system for obvious reasons--they like just installing the Mechanical Dripless systems because they don't leak. Until they do. And that is the problem I have with them.
FWIW.