OK I/O so water is leaking in at the top of the inner transom assy, correct? The cable does not go thru the transom but is connected to a steerinh arm that is then connected to the swivel shaft, this shaft passes thru the transom assy and has seals. Not uncommon for these parts to wear, slat water even worse.
Gas gauge or sendor is bad. On back of gauge find the S terminal, ground it and the gauage should pin one direction then apply 12V and it should pin the other direction. If this checks out the sendor is bad.
1997 2400 SCR
5.7 Vortec / Bravo 2