Sounds like something in the lower unit is frozen. The driven gear on the lower unit is not turning, so that when you turn the steering wheel and rotate the lower unit it causes the drive gear on the intermediate drive to turn, thus moving the engine pulleys. This would also be why your engine bogged down. I had a Mercury outboard once that bogged down like that and then would die whenever it was put in gear. That turned out to be a wad of fishing line causing the prop shaft to seize up. If you're lucky it's something like that. If not, it's a lower unit bearing...$$$$$$$.
