I would be reluctant to use anything less powerful than this model:
http://www.betamarinenc.com/index.php/engines/?next=6
Our stock 23 hp Universal (marinized Kubota short block, similar to the Beta engines) is plenty adequate in our 10600# displacement boat, and your E-29 is not too much lighter. It's a fairly big boat, considering it's stated length, IMHO.
As for used... knowing how ancient most engines are when replaced and how increasingly difficult it gets to source parts for older ones, I'd be quite cautious about trusting someone else's 30-year-old diesel that they chose to replace rather than rebuild. And then, equally old transmissions and control panels are -very- problematical as well.
I do not mean to be all doom-n-gloom, but when you go to the trouble and expense to re-power the last thing you want is a new list of expensive problems to solve. When penciling out a re-power, I would generally want a "ten year plan" for using that boat, so that a major upgrade would mostly amortize out. Modern engines are far more efficient than the old ones and they come with a VERY nice feature.... a Warranty.
Let us know how the decision process goes and what you decide.
There's probably more than one 'right answer' to this question.
Regards,
Loren