Randall,
On your parts diagram in post 45 there is a hose (part #10 I think it says) going directly from the exhaust manifold to the heat exchanger. This is a fairly short hose. In my setup ( an M-18 in a 1985 O'Day 31 but the parts diagram is the same) instead of that hose going directly from the manifold to the HX it goes from the manifold directly to the water heater and then from the water heater to the the HX. That adds several feet of extra hose and the water heater to the system. If your setup is like mine, I think what you might want to try is replacing those long hoses from and to the HX with the "stock" short piece from the manifold to the HX. That is, just remove the ends of the existing hoses from the manifold and the HX and insert the short "stock" piece. You don't need to order the special hose, just get a proper length and diameter hose from your local supplier. This should be easy (other than catching the coolant that will run out) and will take the water heater out of the question. Of course your plumbing may be different than mine. On re reading some of the above, it looks like this is essentially the same as you are proposing in your post 81 above. I hope I am not confusing things.
Good luck.