Well as a followup to this.
Fitted a new Flo-Torque (the old one was up to 1mm smaller in some dimensions and looked more "rounded"). Also whilst the old one could be tapped in and out, the new one needed to be wound in using the prop nut as suggested in the Mercruiser manual.
Took it back out on the lake yesterday morning and.......it still gave the symptoms of slipping
As the resident engineer appeared to be in his workshop I wandered over. Had a chat with him and he said that if the flo-torque slips it quickly melts into a mess and does not work again, so the fact that I get drive back should rule that out. I also mentioned that the drive coupler (the "rubber" plate in what would be the bell housing in a car set-up) has also been put forward as a culprit. He said that if this was slipping there would be a strong burning smell, as there is no smell or noise at all then its not that.
He then said he thought it was the weed in the lake. Its pretty dense now and he says the problem sounds like prop cavitation due to a build up of weed. I then realised that there is another symptom that I have seen, the speedo goes backwards when it happens (ie. below zero!) He said that that just about confirms cavitation due to weed build up. The speedo is driven through a small hole in the front of sterndrive which is where the weed build up would occur, then when cavitation sets in there would be all sorts of strange pressures/vacuums and current flows around the drive, upsetting the speedo drive.
So I went out again and drove only around a fairly limited weed free area in the middle of the lake and everything is fine
So all I can recommend is that people avoid the lake over at Eversley with prop driven boats until the weed is removed or dies.