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That doesn't look good. You should be seeing just straight injection oil coming out. That looks like oil/water mix. You can keep trying to clear it and see if it will eventually start. Keep cranking until you get nothing on the rag, throw the plugs in and see if you can get the motor to cough or...

Fortunately the visible damage doesn't appear to be too bad. Unfortunately the hidden damage will require a complete teardown of the motor. I'm sure the brass gear on the RV shaft has stripped and requires splitting the cases to repair correctly.

Looks like you've got a fun winter project ahead of you. I had a very similar project a couple of winters back. Here's a link to the thread about replacing the interior with the jet armor vinyl. Huge PITA, but the results were very rewarding. Good luck...

I ended up using Rust-oleum high performance aluminium. Very very close match to factory, and readily available at my local hardware store.

You don't need to replace the large oil supply/return lines unless they are in poor condition or have gotten hard. Replace the oil filters and oil injection lines with 3/32" tygon lines

Unless your fuel lines are in poor condition, they probably don't need to be replaced. They don't deteriorate like the grey tempo lines on the skis.

I'd return that starter and buy a rebuild kit for your OEM starter. The aftermarket starters are junk.

There is a carb rebuild sticky at the top of the 2 stroke forum

+1 on racerxxx suggestion. That model doesn't have a reserve fuel selector, just an alarm and toggle switch to alert you of low fuel.

I just always use #4 stainless hose clamps for the fuel lines

SBT and eBay have them. I wouldn't try replacing a 25 year old cable with another used 25 year old cable

Don't run it anymore until you change the fuel lines and rebuild the carbs. Those grey lines are engine killers. They deteriorate, plug the carbs and cause a lean condition.

If your carbs haven't been gone through in 6-7 years, I strongly recommend you do so. Most 2 stroke engine failures are caused by poor fuel systems. I go through my carbs every 2-3 years, even if I'm not having run issues

You can try unplugging the red wire to the rectifier and see if your problems go away. If so, replace the rectifier. With the red wire disconnected, you won't be charging the battery, so don't run for an extended period

Not sure if we're talking about the same slots/grooves or not. This pic from the service bulletin shows the difference. There is also any upgraded housing.

Check your RAVE valves and see if they are slotted. SeaDoo put out a service bulletin for '97 787 motors, to upgrade to the new style RAVEs and housings because of the exact symptoms you are having

Make sure you don't have an exhaust leak. If exhaust is leaking into the hull it can choke out the motor and create those symptoms. Had the same thing happen to one of my skis. Take off like a rocket, and then fall flat on it's face. A bad regulator/rectifier could also create full throttle...

Yes, remove the pump and driveshaft before pulling the motor. You will need them off anyway to align the motor when you reinstall it. Remove the carbon seal retainer (SS hat) before you remove the pump

I sacrificed a cheap wrench to remove the carb nuts. I cut and welded the wrench back together at an angle that allowed me to loosen the nuts. Still a PITA, but got them off

Yes they are on the drive shaft inside the hull. Not sure if your ski has the carbon seal or bearing setup? If the carbon seal and stainless hat don't seal well, it can suck air from the hull and create cavitation issues