Sounds like the hard chrome on the impeller shaft was worn through..or bowl bushings worn through..leading to the impeller grabbing the wear ring and grinding away at the suction housing. Gonna cost a pretty penny. Could have been worse if you had to haul out your boat off the bottom of the lake. :cry:
I would take the boat over to MPD. Jack will let you know exactly what is wrong and what it will cost to fix it. If you can do some of the work yourself you will save a little money. Most of those parts are expensive and I do not know if anything will be salvageable.
He is located in Costa Mesa and is an easy drive from LH. I consider him to be the best and his labor rate is very good! You'll be pleased with the results.
His phone # is (949) 631-2040