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I have some experience mounting OMC engines on a "blue" Whaler 16'-7" hull, and it should be pointed out that these earlier boats had a shallower depth interior splashwell dimension. That is why the standard 8" vertical bolt spacing of the BIA bolt pattern does not work for the bottom bolts, and probably the reason why OMC invented the blind hole mounting system for the bottom bolts. It may have seemed like a good idea for the times, and for the kind of mostly aluminum props they had at the time, but for modern times it is a problem.

The information you have been given here is good - the engine has to be removed from the boat that those old holes filled. I have pruchased two used Whalers with OMC engines, and on both the engines were all the way down, blind hole mounted like yours (curse, curse), requiring removal and complete re-filling of the old transom bolt holes. I switched to Mercury power, but the same BIA bolt pattern applies.

The information you have been given relating to the bolt hole drawing on this site, and to use the "green" bottom holes is correct, and the simplest solution. This allows the bottom bolts to come into the splashwell, and receive the necessary washera and nuts. The bottom bolts should ALWAYS have the nut on the inside - the top bolts have the nut on the outside. This solution will automatically raise the engine 1-1/2", and is the maximum recommended for a lower HP engine like you have.
For best holding, a stainless prop may be required at this height, although a good design aluminum such as the mercury BLACK MAX or SPITFIRE 4 blade may also work. As a
Merc owner I admit I may be prejudiced, but I believe the Mercury/Quicksilver aluminum props are the best on the market and hold the best. They perform remarkably well for $100 they cost. I am not sure, however, they fit the gearcase bullet of the 70's. Check around first.

If you are worried about such a high mounting for a lower HP engine lilke a 70, you may also try the following. Measure your interior transom carefully, and see if you can use the "Yellow" bottom holes.
To do this, you probably have to raise the top holes a little higher than the standard 1-7/8", more like 1-3/8" or 1-1/2" If the transom is in good shape, you can do this, especially if you install the "transom stiffener bar" across the top bolts, about $20. I did this on my Outrage 19 - see photo

http://smg.photobucket.com/user/lgolt...4039058116

If the dimensions will work for you, this will result in an engine "raise" of more like 1" or 1-1/8", and will definitely allow use of an aluminum prop without slippage.