Evgen. Hi.
It looks to me like there has been a lot of salt water in the engine bay at some time.
There are a number of ways this could happen and without looking at the engine it is hard to say how this has happened. However, I have seen a blocked heat exchanger result in forcing water past the rubber connector (large rubber elbow on front of engine with 2 jubilee clips) the result is pressurised seawater gets forced into the engine cooling side of the heat exchanger past the jubilee clips if they are not tight. Hot water, from both the cooling system closed circuit, and salt water from the raw water system cascade/spray all over the engine bay from the header tank overflow and the twist cap on the top of the engine. Again it?s a possibility but I have seen this a couple of times. The telltale signs are rusty components in the engine bay and around the sail-drive gator, rusty water residue in the gator and rusty water or dirty water in the engine header tank, that?s a job to get rid of. I see some of these in your photo.
Oil in the sail drive should be clean, not milky. The latter suggests that you have emulsified oil (oil and water mixed) in the sail drive. That?s not good, it will need to be drained, flushed, and the cause of the water ingress rectified. This could be as simple as the oil drain screw O ring not sealing or more likely a failure of the oil seals in the lower leg output shaft. Sadly I have to say that the water may also have damaged the bearing surfaces and the gears internally. You will need to investigate.
The paint damage you have pointed out is corrosion under the powder coat finish to the sail drive. It does not look terminal but it is best treated. This is can be done with the sail drive out. The sail-drive is an aluminium casting. You will need to clean back to the solid metal. Wash of the oxidisation with a chemical cleaner, then use an aluminium self etch primer and two coats of a reputable smooth finish enamel.
I notice that the jubilee clips on the hoses are rusty at the screw in your photo. This would indicate they are not 316 stainless steel. You must change these (with the valve shut just in case) as if they rust they could fail eventually.
I am sorry to be the profit of doom but you need to look at the sail-drive out of the boat and for the extra expense change the gator gasket at the same time if it shows any signs of cracking or damage. If it older than 6 years its probably best to change it now rather than take the drive out again in two years when your insurance company will probably insist its changed in line with Volvo?s recommendations.
Did you have the boat surveyed when you bought it? A good surveyor should have pointed out all the above to you in his/her report. You may have some redress if they did not.
On the positive side. Removing the sail-drive, gearbox and engine is relatively simple once the boat is out of the water. Parts will cost about £400, depending on the gears and bearings. You will need to have a competent engineer set up the shims that determine the amount of drag (torque) it takes to turn the shafts in the sail drive. Its not difficult but you need to know what your doing. You may get away with a good clean down internally and a protective oil on the rusty bits and on the sail-drive. Dont let oil or paint get on the sail drive gasket. The sail-drive milky oil can only be changed with the boat out.
A long reply, if you need any help or more information drop me a line.
Good luck.
Best regards
Ant.