The cavitation plate should be within an inch of the bottom of the hull.
Usually, the "pee" water is just extra over flow, or an indicator that your water pump is working. Most of the hot water, that is used to cool, should be coming out of your prop, or exaust ports on the back of the engine. As long as you have water coming out there, you should be fine. Does the "pee" water get hot? It shouldn't on most engines.
It is odd that you have flow at low rpms, and not high though....weird.
S.