There's a company now offering aftermarket closed loop cooling kits for MerCruiser engines, in both raw water exhaust, and closed loop exhaust (where the manifolds are cooled by antifreeze). They work very well. I installed the closed loop kit for both engine and manifolds on my 2006 4.3L.
You just answered a big question i have about the cooling system diagram with the mericruiser 5.7. Ive got some questions before I purchase some of your products you have for the EST ignition mod, how can i email you directly?