I haven't worked on any Universals specifically, but shimming a shaft is pretty common after a power swap. One method is to have a shim turned from plate stock, but a piece of heavy rubber works too. One possible issue I see with shimming the bolts themselves is that you are increasing the shear (sideways) loading on the bolts by quite a bit any time the prop is changing speed. With a single solid shim, the bolts need only hold the three parts (propshaft flange, shim, and crankshaft flange) together in tension (what bolts are best at) and the surface contact can handle the torque much better since it's spread out over more than just the three bolts. Does that make sense?
If it fails, it's likely to be a cascading failure because the remaining bolts won't take the increased load and you won't know right away that the first one has let go: you'll back off the throttle and that will 'load' the prop, making the problem worse. The shaft won't slide out of the boat because the flange will hit the stuffing box, but it could potentially jam the rudder. Personally I'd fix it, but I'm by no means an expert. The bolts are probably oversized for the load anyway.
Engine mounts usually have elongated holes where they attach to the boat. Is there any fore-and-aft adjustability left or are the bolts at the end of the holes ?
Cooling: it sounds like your engine has been converted to fresh-water cooling(antifreeze cooled by seawater). That's a good thing.
Pics would help here.
"Verbosity leads to unclear inarticulate things"