You don't necessarily want to move the engine back with a setback. You want to balance the Center of Gravity (COG) so the hull rides as dry and stable as possible.moving the engine back definitely won't help anything but interior space, IF and only if, you redesign/rebuild your interior accordingly.
An important question to ask is, how does it ride right now? Before you go moving everything around, determine what the boat wants. A setback will help develop more lift. Most likely, you could use more lift.
With a 20.5' V-bottom boat, there is a lot of weight everywhere. Bow riders have even more weight up front. I don't think that moving the engine forward would be really beneficial. horsepower does play a role. It's a balancing act to dry out the hull without inducing a porpoise. You can however relocate the battery etc. to accomplish the same weight distribution if needed. Look around and see what you can move.
For engine placement, I would mount the engine so that the oil pan sump is just in front of the of the pump intake and run a slightly longer drive shaft or install a Jet-A-Away with your original drive line.
Yes, there are a few negatives to running a setback. Foremost is the rigidity of the hull when the intake cutout is cut through the transom. This mostly is dependent on how/where you boat. If you anticipate navigating rough water on holiday weekends, the boat will take a beating. It is this flexing of the hull that will cause the intake epoxy to crack prematurely. If you can live with that and resetting the intake more frequently, it's a non-issue.
A minor issue is that a setback intake might suck air and unload during hard turns. This can be accommodated for with driving technique.
How far you can set the intake back depends on several factors that all need to be taken into consideration simultaneously. Your main priority is getting the hand hole cover outside of the transom. Therefore the angle of the transom will play a large role in where the intake ends up.
Where does your preliminary location place the intake bolts? Do you have to shift the intake fore/aft for bolt location so that there is sufficient material around the bolt hole to install the intake bolts? Do any of the intake or suction bolts interfere with fabricating transom plates?
Sometimes, once all of the above falls into place, you may find it incredibly difficult to seal the transom plates around the intake, between the hull flange and suction flange. You might have to make a little block of aluminum to fill this void.
While trying to meet all of the above criteria, you want to try to place the intake so the back surface of the shoe is approximately 1.0"-1.25" back from the transom.
Once you get the location of the intake, the hole in the fiberglass needs to be closed off. I try to taper the glass so there is a flat across the front of the cutout. I blend this into the radius of the keel. I do this so the epoxy is not crazy thick at the very front of the intake.
After the intake is set, you need to blend in the transition between the fiberglass and the aluminum intake so there is a smooth elliptical radius that will appear transparent to the water as it loads the pump. If you don't do a nice job blending the intake opening, the setback is all for nought.
Good luck,
Joe