Regarding cavitation, I think it is more than just an annoyance - more likely dangerous. Cavitation generally occurs when you are in significant seas and trying to get somewhere (to beat a storm, darkness, driving through seas, whatever). When it cavitates, you lose power - and under those circumstances, that is when you most need the power.

I also can't believe it is good for the motor to rev up and suddenly have a load put on it, again and again.

On the other hand, if you mostly do fair weather sailing, cavitation may just be an annoyance that occurs when you hit a motorboat wake.

You mentioned the distance from the top of the transom. Did you mean the distance from the top of the motor well mounting board to the water? I'll try to measure that for you this weekend.