I have a 1977 Islander too, and my exhaust port is not in the transom. I can't seem to upload a picture of my exhaust port, give me your email address I'll send you a picture of where mine is. If you look at the picture my exhaust port is actually not through the transom, but just above the waterline and under the rear portion of the hull.
I would suggest putting your exhaust outlet where mine is.
I have the small Volvo inboard. Maybe your engine needs an exhaust port somewhat higher.
hope this helps.