I have had the rudder off the boat. My opinion is that it is easier to take it off the normal way, particularly if you are going to destroy the rudder anyway.

The only real problem is getting the screws out of the two pieces of the shaft- said differently, getting the nuts off the ends of the bolts.

But yes, the boat has to be pulled out of the water. I don't know how else you can do it. Just cutting the shaft, if I understand you right, will not remove the rudder. There is also a strap half way down.

As for wood, I used a single piece of mahogany. Like cypress, salt water does not rot it. It doesn't have the protection from fresh water, but heh, my original mahogany rudder lasted over 30 years, and this one should do better. I sealed it completely with wood sealer before mounting it. Then I put on an exterior water proof sealer primer, and finally anti-fouling.

So far it is working like a champ.