The key pretty much always extends into the threads. That shaft appears to have no spotting for the coupling set screws, an improperly cut keway and the PO re-used the coupling after slapping some paint on it, never a good idea unless a fit & face was performed. From the looks of the rust inside the coupling that was not done.... Oh and the face of the PSS carbon block appears to have a chip out of it and is a non-vented type, which means it is quite old.. Unfortunately this is an example of previous owner hackery 101..
Based on where that key sits, and where the shaft sheared, and lack of scarring at the head of the keyway, it seems that they prop was "key bound" and not properly installed thus the key/keyway was taking the entire load... It was only a matter of time..
New AQ 22 Shaft
New Coupling Fitted & Faced (preferably a split coupling)
A Properly Made Shaft by REPUTABLE SHAFTING SHOP
Lap Fit The Prop
Install Prop Correctly