Sparrow,
Obviously you'll have to have someone with experience look at the previous owners work. If you can post some pics maybe some of the local true experts can chime in.
IF the transom has issues I personally would recommend rebuilding it to 25". I too was a novice(and still have alot to learn) at this kind of thing, but armed with some basic tool, construction and internet research skills you can accomplish rebuilding a transom yourself.
IF the transom checks out OK then yes, it is possible to live happily with a 20". Considerations would include mounting a 20" engine straight on or 25" shaft engine raised the extra 5" with a jack plate. You could also consider fabrication of a splash guard.
Best of luck!
BTW I like your temporary setup idea in the yard. You could practice fishing by casting milkbones at the neighbors dogs!
