Very cool idea! I have considered doing this years ago, but never got around to implementing the idea.
One thought for an improvement to your set-up - It might work better if the "water load" was not a tub of water. If you used an "oval shaped, horizontal, loop" of water filled plastic pipe... that configuration would allow the water to flow around the oval. That way, the water that is "entering the front of the prop" could be fast enough - such that a normal racing prop "will get a bite" on the incoming water, and perhaps not cavitate, like it appears to be doing now. When a prop cavitates - it puts very little load on the engine. With little load, you will not be able to set the carb correctly for "normal boat running load". When you run your boat, when your boat is traveling at 50 mph, the water entering the front of the prop is traveling at 50 mph (relative to the prop). Having a loop of enclosed pipe may be better able to simulate this effect.
When making the oval pipe set up, it would help to have gradual, somewhat large radius 180 degree (or two 90 degree) pipe fittings, to better conserve the energy, flow and speed of the water as it travels around the pipe circuit.
Please keep the posts coming.