After some long discussions with York reps and with Honeywell (who does the zoning equipment), I think (if the HVAC guy doesn't come down on price) I may have them run 2 trunks in the basement, and feed the appropriate ducts into each. i.e. have all the 1st floor ducts go into the trunk for the 1st floor and the 2nd floor ducts into the trunk for the 2nd floor. Then have them put in a manual damper near the beginning of each trunk, and have them run a thermostat wire upstairs for future use. I can't imagine this would be much more work than what they're planning on doing anyway. Remember the main plenum/trunk isn't even run yet. That way I can go the first year and see how bad the temp differential is between floors. And I could simply manually adjust the dampers each season (likely close off the 1st floor by a certain percentage) so that more or less air flow goes where I need it. If it doesn't work out, or if it does but my manual adjusting is too much work, I can do the zoning in the future without too much more cost, since the trunks are already done. I figure at that point, they'd just have to add the zoning panel, hook up the 2nd floor thermostat, add the auto dampers etc. And at that point, I could at least have some other HVAC guys come in and get some competition and different ideas. Thoughts on this approach?

Tankless heaters are much different than tank type. The GPM for a tankless unit varies with how much delta temperature rise you need. The peak rating is usually at a rise of 45 F, but a more usable rating (lower flowrate) would be at 77 F since you will usually be raising water from the mid 40s or mid 50s up to around 120 F. If your 40 gal unit is working OK I question the need for a tankless unit. Installation costs can be sky-high... as I'm finding out. Tom

"I just am not clear on where the extra C-wire gets wired to. " Because the thermostat is electronic, it needs constant 24v - so this is a 'hot' wire right from the transformer. I would wait until Spring to try this :)

There are many ways to 'design' a zone system. Some ways are less efficient than others. In most cases, when it comes to these type of zone systems the designs are such to make it easier to install --- but not for the best in efficiency. In order for the zone system to be most efficient, you have to have serious control knowledge. There are a plethora of zoning controls out there. Some are very poor choices. The better controls require good 'design' practices or the zone system will likely trip out with faults or run erratically. The biggest enemy of a zone system is too much air pressure. To alleviate this pressure some manufacturers will keep dampers slightly open. Part of this is to reduce cost so that you can skip the bypass damper. The problem is these methods don't make the system as efficient as it could be. It all comes down to 'design' as well as the controls chosen. If you choose the right controls and the 'design' is wrong... It won't work very good. With that said, a properly zoned system with dampers that close solidly will supply air to the zones on occasion. Typically, this occurs when the system first starts up because all zone dampers usually start from an open position and take a few seconds to fully close.