if you pull on the prop the whole thing slides out about 1/8 in. The motor ran fine last weekend and as soon as we launched today it started to rattle. Could this be some bearing or something or does this sound like major problem?

You sure it's not just the prop is loose?

i did take prop off thinking i was going to get new one in mail before we went but didnt and had to put old one back on. The whole drive shaft slide out including the gear.

Is there anything besides the prop that would cause this?

Yes. Remove lower unit, loosen Allen screws that hold gear on. With prop shaft end standing up on block of wood, tap pulley down onto shaft. Tighten Allen screws and you're done.

Are there any groves worn in the shaft like around the seals? If its moving back and fourth check the shaft next to the seals just to make sure, check for any grease seeping out too, just some thoughts