OK, the mystery has part solved itself! Turns out the lever on the top of the ram isn't actually a 3- position thing at all. It was a two position thing with a bent stop! Yam in their infinite wisdom made the lever out of a (relatively) thin bit of stamped sheet. I can only assume a previous owner has become a little too enthusiastic about moving the lever, and the "stop finger" was bent out of straight, so the "stiff" bit in the middle that I thought was position 3 was in fact it just sticking on the end of the stop lump on the cylinder!
Net result: the engine now locks down happily (lifted the boat off the trailer by the engine!), and in the "release" position, it now drops with a little less excitement than it did before. I can only assume if the valve goes past its stops, all damping / locking effects just don't happen.
So, the question is now - "Should I be able to lock this for shallow water drive with this ram? PArt of me thinks it's probably od a similar design vintage to me ole'72 Johnsorude i.e. shallow water drive = get the paddles out.
Another interesting aside, I can find no official reference or pic of this engine with this tilt ram fitted. I appear to have a late 70s 2- cyl 55 with an early 80s 3- cyl 60Hp bracket!
Oh well. At least it sort of behaves now.....