Well I took apart the lower unit and everything looks great! The previous owner must have changed the water pump and impeller because it looked new.
Put everything back together and fired the motor up.
https://s2.photobucket.com/albums/y32/d_rednour05/?action=view¤t=IMG_0262.mp4
It idles great! Let it sit and idle for about 5 minutes...kicking out water the whole time. I checked the block a few times and it was warm but not hot. Let it run a little longer and I checked the block again...it was getting hot. It was still pumping water good so I checked the thermostat. Sure enough the thermostat is broke.
So I order a new thermostat, seal, and gasket.