Yip'eeee

I like the smile on your face.
WELCOME TO THE CLUB !!!!
You know that does look like a stainless shaft in the picture.
If so, nice because it is likely not warped at all.
That will be great!
Is that ridges I see in your picture around where the set screws went in?
If so, even a little ridge, and if it is stainless then I understand the difficulty.
The ridges around the set screw made the shaft bigger there.
The tolerance is very close indeed.
I wold not use a Dremel tool but a hand file to knock off the ridges on the shaft.
Even better a wood block with silicon carbide, black wet ot dry 100 grit, would work well.
The sandpaper will work nicely in the hub hole as well.
You should be able to push them together by hand and turn them and it should be tight - hand tight.
Nice job my friend.
You don't look like such a young'en anymore !!!!
In my strut the cutlass is full length.
Mine was however pressed in; no set screw.
I had to take the strut into the machine shop to have it installed.
I don't think you want to take off the strut.
I would guess being short is okay based on the size if the strut.
Again guessing, the cutless is about 4" long on my boat.
If the shaft was tight and not wobbling in the cutless I think I would leave it alone.
More experienced others might suggest something different there.
The main thing is the alignment so makes sense if it is wobbley in cutless bearing the alignment will never be right.
Just a passing thought......
Check that the slot for the key is the same size in both the shaft and the flange.
Still something going on there I think.
Far as the shaft hole in the bottom and preserving it.
I am against epoxy for anything on wood really - old wood guy.
My 1929 had no epoxy and lasted 50 years before the transom started rotting because of leaking under the shaft log the result of a bad alignmentand but the shaft hole was just fine.
Epoxy will not prevent water from getting into the wood.
The water will get in no matter what.
The Epoxy will only prevent the water from escaping from the wood - thus rot - just my 2 cents.
Use the paint you use on the bottom.
Having said that - thirty years ago I had a piece of 1.5" brass pipe used under a kitchen sink, a long tailpiece, you know the kind that goes to a sink trap - very thin brass.
It fit pretty tight in the hole and I drove it in and sanded off the ends.
A very good all around sealer for my boat is BoatLife.
Unlike epoxy or 5200 this stuff sands and paints better and if you do have to take something apart you can.

- BoatLife_Life_Seal_Sealant - 400.jpg (31.48 KiB) Viewed 1755 times
Here is an old picture of my first one finished.
Great Job!
Denny