The noisy sail drive needs attention

I tend to agree its bearings, but to eliminate the sludge thru the system drain your oil and refill with diesel.. let it sit a day or 2.. cycle the engine a few times with no load on it to flush out the sludge.. then drain it and disassemble the sail drive, check all rubber and plastic parts including seals, grommets, gaskets, and any other plastic parts, look for degradation and water intrusion or corrosion.. replace bearings, gaskets, seals, and anything else degraded or worn.. its not a fun task but better then a full sail drive replacement on what should be a brand new sail drive.. if the problem repeats after that, its probably worth replacing the entire unit..

I'm sure you're aware of them, but have you considered sending a sample of the oil to one of those test labs? I have absolutely no idea how much that costs, but it certainly will be less than a sail drive, or possibly even less than spare parts. I would assume they can test any lubricating oil, not just motors?

The sludge lumps are oil/water emulsion gloops (for want of a better term). The black colour indicates anaerobic corrosion. There is or has been water in the drive. Water intrusion may have corroded the bearings or gear mesh causing the whine. Teflon in the Shift Eze will reduce the noise but not eliminate it. (great advice Brett, it could stop terminal shredding) ). When you're out and dry next I'd take the whole assembly apart. Meanwhile check for heat differential between both inboard sail drive assemblies with an infra-red laser gun when running. (Bunnings $56). That will indicate friction wear heat and how hard the bearings and gear mesh are working). Download Volvo Penta's SailDrive service manual and strip and service. I wouldn't run it for any great length of time sounding like that. If it's a simple bearing replacement, its better to spend $500 now on new bearings, seals and shims before they fall apart and then having to replace the entire $5000 drive gear system.

Could the sludge be caused by something akin to diesel bug? I imagine there could have been some moisture in there when you first added oil.