Marine silicone.  A light coat around tip flange and a good coat around bolt threads.  Once compressed wipe off excess but you might still get a bit more seepage shortly after.

3m marine adhesive sealant is a permanent seal. 

you really like that shit don't you.

IMO, if yer gonna use that stuff, you might as well just glass it in....you'll never get it off anyway

I am on the downhill side of replacing my transom wood in my 88 four winns I/O. I was wondering what would be the best sealant for the bolt holes and tt exhaust tips? And what is the best method of sealing to assure no water will get in?
thanks

On the I/O (either Mercruiser or Cobra same-same) the transom assembly goes on dry with a new foam o-ring. You can use a little bit a marine caulk/silicon like http://www.shop3m.com/60980105732.html  (non elastomeric)  around the holes on the inside and the outside, but use sparingly.

As for the screws/bolts retaining the exhaust, I would also use marine caulk.

On the I/O portion, the holes do not need to be sealed all the way through because of the O-ring. If you use too much goo, the next time the assembly gets removed it will do major damage to the transom of the hull and may break the transom assembly....

Good luck...

BTW, do you have an alignment tool? 

Engine alignment is crucial on these badboys

GT