Dale,
I have a '94 29.5. I'm not an expert but here is my experience on this.
I think you could safely start the engine out of the water but I'm not sure if I would put it in gear for very long without water around the cutlass bearing to cool and lubricate it. Maybe the packing in the stuffing box needs to be wet also. I guess these won't be an issue if you don't put it in gear.
You will want cooling water running through the engine if you run it for any length of time. The trick for feeding cooling water into the engine is to remove the sea water intake from the seacock (Kingston valve?) at your through-hull. If you have enough slack in the hose you can stick the end in a bucket of water so the engine can suck in cooling water. You will need to keep adding water to the bucket because the engine will pump it dry pretty fast. I do this every fall when I winterize my engine. I have to dump antifreeze into the bucket about as fast as it will come out of the jug to keep up with the engine intake.
It is important to use a bucket and let the engine suck up the cooling water at its own rate. DO NOT connect a garden hose directly to the intake and put water pressure on the engine intake. This could cause water to flow back into the exhaust port from the mixing elbow and destroy your engine. I have been warned not to even crank the engine too long with the intake seacock open if the engine does not start because the engine can pump itself full of water without the exhaust forcing the cooling water out with the exhaust.
If you are not going to run the engine very long, you could probably get away without any seawater cooling. It could take a few minutes for the engine to start overheating. In fact, when I was buying my 29.5 and we took it on a sea trial, the impeller was completely gone so it had no raw seawater running through the engine. We ran for over half an hour with the over-temperature alarm sounding and did not destroy the engine (it was a cold day). I DO NOT RECOMMEND REPEATING what we did! The previous owner still owned the boat and it was his responsibility if anything was destroyed. But, he was lucky and he really wanted to get rid of the boat.
I hope somebody else joins in with some advice. I don't think I am much of an expert.
Good luck, I hope all goes well for you. I love my 29.5.
Tom