probably gear box oil. sounds like the oring seal.check for water in the gearbox.

Sounds like gearbox oil as holth says. Happened to my old johno. Cheap fix as long as hasn't been running salt water through the gears for a while.

 Hope your problem isn't too big.

When you say oil lvl ok - I'm guessing you mean on the dip stick? That's your motor oil. As the guys say above most likely your gear box oil from your lower unit, could possibly (hopefully as it's a fairly easy and inexpensive fix) be a loose fill or drain plug on your lower leg unit which houses your gearbox oil.
Firstly check if these are loose. If so you best check for salt water ingress - keep top plug secure and loosen lower plug a small amount of oil should come out, if you loosen the top plug the oil will drain freely & you'll need to replace the lost oil. Check this oil quality if it is an milky emulsion you have salt water in there and will need to drain the lot and refill possibly a couple of times to ensure you get all the salt wtr out. Check the washer integrity. This vid may help. http://www.youtube.com/watch?v=AqQvbXV1Cw4
Good luck

Thanks guys checked the gearbox oil today and its green and doesn't look like the same oil leaking from the water inlet

Any chance it's Squid ink not oil?

Hey ledge,

Something for you to try... Tilt the motor fully up, leave it for a few mins then tilt it back down, you should get more oil leaking out...

To give you an idea of whats in there ill try and explain what happened with mine. Theres a shaft which goes from the powerhead to the gearbox. At the bottom end of the shaft directly ontop of the gearbox is where the water pump will be sitting (all in the lower leg). That shaft continues to the gearbox and also has your impeller on it (above the gearbox) which sucks water up from the water inlets.

Now something needs to seal the water inlets from the gearbox. On mine this was an o-ring which was underneath the base of the water pump housing. If this o-ring fails you'll end up with water in the gearbox oil and gearbox oil seeping out from the water inlets. Which sounds like whats happening.

I'd get a an outboard mech to check it out if your not too mechanical minded. They'll probly do a pressure test of the gearbox oil seals to determine the fault.

Hope it helps,

Steve

 Hey ledge the problem could be your oil cooler (engine oil) if it hasn't been serviced before the orings could be stuffed 

Oil leak has stopped and there is no water in the gearbox and the oil leaking is a different color looks like engine oil and the engine oil is full

The motor is due for a 250 hour service in 10 hours might just have it serviced earlier, any recommendations NOR

I noticed the same thing on my boat.  Turned out it was a loose fitting on the steering ram, dropping a small amount of oil into the well, which found it's way into the water....check that as well.  If its engine oil, you should notice a bit on the drive when you park it up.