If there is only 120 psi remaining in each one of those cylinders you have reached the point where an excess of heat is going to be making it's way past the worn piston rings and eroding the oil film from your pistons on the power stroke. Even though it makes WOT while sitting static on the trailer with no load on the PTO side of the motor and shaft that all changes when it's in the water and under constant load from the pump.
The issue is your rings/pistons/cylinders are worn to the point where they cannot completely compress the air/fuel mixture and that is robbing you of horsepower at the crankshaft, you won't be able to get the boat on plane and drop the throttles to keep it there once the engine's ability to make horsepower falls off far enough and it sounds like you're there with one of them already.
In addition to that, the searing hot exhaust gasses that need to be directed out of the exhaust ports and into the manifold are now partially making it past the rings and attacking the film of oil on your pistons and skirts.
It doesn't take much blow by on worn rings and cylinder walls to melt the alloy's in the piston and score them and start transferring aluminum to the cylinder walls. In your case I would remove the spark plugs, pull the rave valve's back out and rotate the pto so you can see the sides of the pistons as they move up and down in the bore and observe their condition.
Hopefully the pistons aren't scored yet, the sooner you catch an engine with low compression the less likely your chances of damaging the crank and seals are. It's a fairly simple process to remove the cylinders for boring and honing and replacing the pistons and rings to restore power to the engine.
The dangers of continuing to operate an engine with low compression is that the pistons will continue to shed aluminum, cylinder wear will increase and sooner or later the piston skirt's will crack, rod bearings will fail on the wrist pins and send large fragments down into the crankcase effectively destroying the entire engine.
It would certainly be worthwhile to use another tester just to validate your findings, but at this point 120 psi is a red flag to open up the top end's of the motors for inspection.
On Edit:
Regarding your water line question, reference the blue arrow in the schematic that is the tell tale line that runs from the exhaust riser and back a couple feet to the tell tale fitting above the swim platform that shows you a stream of water discharging to indicate the jet pump is supplying cooling water.
The red arrows show the location of the clear lines that T near the bottom of the bilge, check those for leaks and also use an inspection mirror to see under the exhaust head pipe there are a couple of the casting pipe plugs that are welded in place that will develop leaks. The pipe can be removed and tig welded to repair it.
