Sorry "Captain"; that is incorrect. If the transmission is not engaged, you are a sailing vessel.
I also called the USCG. They were in agreement with those above.
In court, I would think the issues would be:
1. Was your engine running (In neutral, forward or reverse)?
2. Was it capable of propelling the vessel (functioning properly)?
3. If no to #1. - Should it have been running to avoid the collision? I.E., in the OP, both vessels were in close proximity to many vessels, both without anchors or sails. IMO, not having the motor running and ready would have been negligent, and certainly would have resulted in a collision.
4. If yes to #1 and #2 - Why wasn't it used (put in gear) to avoid the collision?
Using the "must be in gear" theory; What if a collision had occurred in the OP, and both skippers admitted their engines were running, but were in neutral....then what? It's very likely the witness's on both boats could testify that the motors were running, but few, if any, other than the skipper would know if it was in gear.
In fact, my transmission was in neutral, and I put it into reverse with full throttle to avoid the collision. Did I make myself more liable by taking that evasive action, thereby becoming a power boat? On my boat, witness's couldn't possibly see me put the boat in gear (an odd set up that I'm not crazy about!). Could I have simply claimed the transmission stuck and I never got it into reverse?
Forward, reverse, neutral.....Seems like a silly distinction to me.