Alastair, is the splined insert with the grub screw threaded or plain? The idea of the lock nut is to lock it against the splined insert if the insert is threaded. If the insert is plain, as the grub screw would tend to suggest then you could be locking the grub screw against the thread on the shaft, which could damage the thread, and it won’t hold to it very securely. Ideally if the insert is plain it is best that the grub screw locates on a flat on the shaft for the best security.
The trouble is that currently the nut is free to move around and so it is tightening up on the end of the stern tube. You can’t stop the nut from moving around though because tightening the nut against the splined insert only pushes the splined insert further up the shaft.
If the shaft is threaded to the end then the splined insert should be threaded not held by a grub screw, so, if that is the case, you need to buy a new splined insert.
If you just remove the nut then there is nothing holding the washer in place on the end of the tube and you could find you are getting water ingress. As Colin mentioned the two washers on either end of the tube should be a close fit with just enough clearance to allow free movement.
I would also question the use of grease. Grease in a shaft tube can also put more load than necessary on a shaft and motor, causing the motor to take more load. Oil is much better, preferably with an oil filling tube on top so you can top it up as you will loose a small amount over time.