Heating heatshrink just causes it to shrink until it has reached its limit. If the wiring is heating up because of current or because something that it is near is heating it, it will just grip tighter if it can.
An often repeated rule of thumb for direct drive brushed motors is that the prop diameter should not exceed the motor can diameter, and should preferably have fewer blades than the motor has poles. You dad's advice is as sound now as it was then, there has been no fundamental change in the laws of physics in the past 20 years, apart from the Chinese method of reckoning current.
Losing weight on batteries will improve run time and performance. There is a big difference between the amount of energy stored in a 12V 7AH SLA and a 12V 1.2AH NiMH - a higher capacity NiMH would be the way to go. Less weight to drag around, more capable of sustained current delivery, the usual result is a faster boat that runs longer.