Yes, the dripping water is to cool and lubricate the shaft where the packing gland is. Have you dove or had someone dive to inspect the prop, shaft and strut? If not, you should. Also, have you tried loosening the knuckle again? If not, you should.
If the prop shaft, prop and strut are clear and there is no growth on the prop blades, and you loosen the knuckle and the vibration returns, then I'd recommend following Rich_H's instructions.
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You know what the first rule of sailing is? ...Love. You can learn all the math in the 'verse, but you take
a boat to the sea you don't love, she'll shake you off just as sure as the turning of the worlds. Love keeps
her going when she oughta fall down, tells you she's hurting 'fore she keens. Makes her a home.
—Cpt. Mal Reynolds, Serenity (edited)
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Still—DON'T READ THAT POST AGAIN.