We've removed and repacked with the boat in the water. You pre-cut your packing to the right length. Remove the old squished packing and put the new stuff in and re-seat the packing bush, making sure you tighten up the two bolts evenly.
Yes some water will come in - but that's what you have a bilge pump for, and if the amount coming in round the shaft whilst you have the packing out is enough to get anywhere near to overwhelming the pump then you've got a serious problem.
As for packing - we've picked up a small length and as when we've needed it. Most chandleries sell it - but as has been pointed out there are different sizes so you need to make sure you get the right one.