Glad to hear the hull is sound and with your proposed plan of action should result in as good as original with lots of sanding between coats.
As regards the prop tube leak I agree with other comments already made. What is not clear is the actual set up at each end. Should be prop, locknut, thrust washer then the reverse at the motor end. It is possible the shaft and or bearings have worn, if you can feel play when moving the shaft vertically to the tube this could be an issue. I always remove the shaft carefully in any old model I acquire so I can inspect the bearing areas. You need a very smooth bearing surface with little or no play for best results. 3in1 oil and a soft cloth will help remove any surface rust but do go gently. Grease/oil mix in the prop shaft will help stop water ingress and will need at least an annual inspection and replacement. When fitting the last washer/nut/coupling there should be a small amount of lateral play between the washer and bearing, Rizla cigarette paper used to give about the correct gap. The effect is caused by capillary action so is more noticeable when the shaft is turning in one direction. I have changed from right to a left hand prop on a single prop model, doesn't work with contra rotating twin props where a proper stuffing box at the motor end is required.