You are going to be limited on your jet install if you want to retain the original round cutout and Sanger ring.  You pretty much have to put it in exactly the same location as it was originally or the pump won't line up with the transom hole.

If you are open to glassing and recutting the transom opening, since you are already working on the transom, you will have some options.

Largely, your options are driven by your intended use for the boat.

Regarding the wood installation in the transom, stop it short of the opening(s) so that it can be completely sealed in fiberglass.