If you are in the water then you are likely to get continuity between shaft and hull when measured with an ohmmeter. A better test is to have someone look at the Capac meter (hold the button in) while you short the shaft to the hull (which should be the same as the engine) and see if it deflects when the short is in place. If it does, OK. If it does not, problem.

Use the ohmmeter test when out of the water. In any event, if the washers look "pretty bad" they are worth swapping out. I get stuff like that from Ace or from Mcmaster.com.

The cutless bearings should be OK as long as the rubber is in good condition. They will only cause a short if they are really chewed up, shaft touching the strut metal. I just replaced such a strut. You can get the cutless from John for about $90 or from www.deepblueyachtsupply.com for around $50. John will sell the bearing already installed in a new strut, no small advantage if you are buying a strut.