Dave,
I very recently went through kind of the same thing but with a 1994 Mercury 40 hp and I ended up having to replace pretty much the whole tilt/trim. Mercury has changed tilt motor manufacturers at least twice in the past 10 years and finding just the motor for some of these units is almost impossible. Luckily I was able to locate a rebuilt motor/pump and cylinder but it still ended up costing me almost $500.00. A new unit would have been in excess of $1,000.
When my tilt/trim motor was going bad it would do exactly what yours is doing. It gets progressively worse. I ended up having to tap on the motor housing with a screwdriver to get it to run. Finally it stopped working all together. You may be able to have the tilt motor reworked. I know of one guy who has done a few but he does not guarantee them because he tells me getting them sealed back up water tight is very difficult.
Hopefully you can find a new tilt motor for your boat without having to replace the entire unit.
Eyehunter