From personal experience 4200 or life caulk would be my recommendations. If you have ever tried to get anything apart after using 5200 you would know why.
I know the boat. 87 was a transition year so to speak. If the engine now has a full circle rear main seal you should be ok. If not the flywheel will be different
That would be all well & good Jim if he was running equipment that would require a 40a run, but as you can see above what he is using this run for barley maxes out at a 15 amp draw & that's including the max draw of the vhs if it were transmitting on high power, hence the 10 gauge for that short of a distance and draw. I should of included a 20 amp fuse to clarify it.
I would guess your only running about 15' in that size boat 10 gauge would be more than enough & have room to add more toys down the line if you wanted.
If your running your power to the fuse block thu your battery switch to kill it when you shut the switch down you would want to pick up your 12v power at the "on" side of the battery switch and fuse it there.
As Shawn said that is the correct way of doing it , anything coming off the battery should be fused at the battery, amperage depending on load. In your case 40a should be more than sufficient.
You are right > The battery is grounded directly to the engine block & that's as far as it goes. Any other grounding should go directly to the battery or engine block, NOT using the hull as a ground plate on an aluminum hull boat.
That appears to be little more than an inline noise filter for some type of electronics the owner had on the boat at the time. It can be eliminated & wire your fuse block up as you see fit. You made reference to it was grounded to the frame assuming hull, under no circumstances should any part of the 12 volt system or electronics be grounded to the hull.
I think you'll find it's cable over power assist, the pump is right below the alternator in your picture. With your HDS7 Gen 2 you might want to look into the Lowrance pilot for cable steer system.
If it looks like this or similar:
It's the reservoir for the older "Hynautic" hydraulic steering system. Pressure is normally around 20lbs, but if all is well with the steering, the gauge shows pressure & the sight glass fluid is ok it's normally best left alone.