Go Engineless?

On the two boats I've owned one had a diesel inboard and one had a Johnson 5hp outboard. If I had it to over again I would select the outboard and build a better mounting bracket than what came with the boat and I'd use an outboard that had an integral fuel tank like the Seagulls. Speed-wise both boats were equal but with the outboard I could maneuver in close quarters much better plus it saved a huge amount of money in the up-front cost of the boat. In heavy weather even the diesel inboard (unless you have a big prop) isn't going to help much. Downside is that a big three blade on one of these small boats is a huge drag and you can literally feel the difference when sailing if you've had much experience in 26's with small 2 blades or outboards. You can mount a really big blade to an outboard that's only in the water when you need it. Problem is the mounting system which needs a lot of thought. Needs to be closer to the rudder as well. Actually a rudder mounted bracket is perhaps the best solution for the small outboard. Just my opinion for what it's worth.

My outboard bracket was at the extreme edge of the tansom and after owning a monitor I don't think think the control sheet arm would be in the way of an outboard. Remember that an outboard can be mounted far off-center if necessary, sometimes even outside the deck sheer line as you see in some river boats that are 'side-steered'. Post a picture of your transom and I'll make some diagrams.

My C026 never had a diesel.  I have a Honda 9.9 that works just fine.  Servicing is easy, repairs are cheap.  You can get remote controls and even power-assisted lifts.  The tricky part is the bracket.  Raising and lowering the engine, and I don't mean tilting it, can be back breaking.  Give some thought to a block and tackle to make it easy. 

The other downside is that having an outboard raised my ASPN from 94 to 97.

To state the obvicous,an engine is a great convience.Not much help in a blow,but being becalmed for three days really does blow,even when you have ample time on your hands.Making tidal passes at the right time is very challenging,at leat here with the traffic and speeds up to about 15 knots in places.Thus far I have found the objective hazards to be calms in bad places ,and being carried down on to a reef in light or no wind conditions.In places the bottom can come up very fast.I also try to stay the hell out of the way of tugs and barges,though these are likely the most professional sailors on the coast;they are not manuverable.I listen to the traffic channel 24 hours aday on the coast,so I know who to look out for in advance.That said,try it out.You will never be more engaged with sailing than when you are without a motor.My vote for basic propulsion is a two horse Honda hung on the rudder,or wherever,it will certainlly encorage one to sail.

Not having yet sailed or even launched my co26 I can't speak from experience but from what I've read on this website. Many have seemed concerned about  weight in the ends of the boat ie: a  Monmitor versuses other windvanes, a big hook out over the bow, chain in the forepeak, etc. and weight in general. A 9.8hp  4 stroke is a heavy motor. My experience is with several inboard and outboard auxilliary sailboats. The inboards  are an expensive pain in the ass. When they run right they do what they are designed for well.  You can't beat an o/b for serviceability and  cost I am currently sailing a Cape Dory 18' Typhoon with a 6hp Johnson out over the transom. It works better then great. I do wonder how it would sail without this weight hung out far over the transom though. I sail in area with a strong tidal flow amongst many moored boats in an area with fickle winds. I can't chance taking the motor off. The biggest drawback with the o/b is that in a following sea the water comes right up and above the bottom of the motor cover. I have to be very careful not to fllood the o/b therefore limiting where and when I go. Having said this this is my concern about taking the  10hp Bukh out of my co26 and replacing with an o/b. Oh yes, outboards sure are ugly on any but the ugliest of boats. A lot can be said for this

I'm sure there are reasons that I can't see in the pictures but your particular mounting arrangement is like nothing I've seen or done on other 26's with a Monitor. Perhaps the Dorades were in the way of the normal mounting arms but on the boats I've worked on we mount the vane much closer to the rudder, about 6" higher than yours as shown and the downstruts were closer together and lower on the transom.
That's a really nice looking boat by the way. Even with your current vane mount there is still room for one of the little pop-up outboard mounts, they're only 10" wide.

I've just purchased a co26 with a Vire 7.5 in it.  It still works, but I have started looking at an electric conversion for when it doesn't.  I have found some useful sites.  Some advantages would be instant start and reverse, quiet and no winterizing, low maintenance.  Of course, you have to keep the batteries with enough juice, but I'm used to solar power at the cottage.