Mark. There have been numerous discussions on this very subject and no one will agree whats best, we all have our preferences.
If I had a lathe and could make my own shafts, I would use commercial brass tube and turn some nylon bearings for it, making the outbourd bearing twice as long as per “standard”, in order to improve the water sealing properties. It wouldn`t be absolutely watertight of course, and you need some water to lubricate the bearing in any case.
I have used a thick felt washer inboard with some success…this can be nipped up a bit tighter than normal as its springy, without being tooo tight, and will provide a bit of extra sealing at this point OR I have also cut some nylon washers to use at the outer end, again, they can be nipped up with no play and still not restrict the shaft too much.
I would simply arrange so that any water leaking from the shaft is kept from running the whole length of the hull, and every 20 or 30 mins check and if neccesary suck out excess water.
I have several models with shaft-lines totally submerged and never bother to check normally ; In 2 hours sailing I may get a few dessert spoons of water in there, but if everything is varnished inside and the reciever is not actually at the lowest point, it can be ignored.
Neville. I dont think there is much in the way of rules for this, However it shouldn`t be too close or you have trouble getting the prop on and off
Ashley