John, Issues with shower valves tend to be that with pressure balanced, some heaters with high pressure drops result in significant pressure differences at the valves (lower hot side) causing the spools to search for setting to maintain even pressures. Thermostatic valves work well, and many issues are when people raise the outlet temps higher than needed, resulting in excessive temp differences between hot and cold, but also adding to pressure differences since the heater regulates flow to achieve correct temp outlet. Since Legionellas isn't much of a part here because of minimal storage in a tankless and the waterways are self-flushed every time it is used, lower temp settings helps this along with assisting lower flow rates/temp to activate unit and keep it running. My .4 GPM unit has no issues activating at all faucets. Regarding your 3-shower comment, do you really have 3 showers running that often? The way these work (good ones) is they will supply a water flow at or very near the setpoint chosen, so instead of running out of hot water or someone not getting temp desired, the flow will be split, resulting in all 3 showers getting less volume, not temp (with thermostatic valves). Just as a tub filler would work, instead of filling the tub at 13 GPM, it may fill at 8 GPM (mixed water) resulting in a slightly longer fill time. Who cant wait a few more minutes for a bath? Upside is anyone else in the house still has hot water after filling tub, unlike a tank unit.

If you go with any sort of solar system, make sure it has a gas backup and not electric. My energy costs went up $100/month when I added our solar system down here in San Diego. I am now getting it corrected with the installation of a small gas tankless unit, using the solar storage system as a pre-heater. If you're building the home then many of the traditional drawbacks of tankless don't apply to you. You can build in the correct gas line and venting from the start. If I were in your shoes I'd probably go tankless (30 percent tax credit this year -- see the stimulus law or visit www.energystar.gov). If a single unit won't handle your demand then get two. And plumb it with the small tank system (10 gallon) for recirculation and to overcome any sandwich problems. This approach has been detailed in this forum somewhere.

The point of a tankless water heater is to have a continuous supply of hot water that, unlike a standard water heater, will not run out. It can only provide instant hot water if the tank is at the point of use. There is nothing magic about it that will repeal the laws of thermodynamics and fluid flow. If there are many feet of piping that the heated water needs to run through, particularly if some of the run is in unheated space, there will be the type of lag you are describing. This is because the heated water has to displace whatever cool/cold water has been sitting in the pipe, and because that heated water will also will lose a lot of heat to the cool piping until that piping gets to be about the same temperature as the hot water. Only when the sitting water has cleared and the piping is heated up will you get water coming out at the temperature you want. This is not unique to tankless units...it's true of any type of water heating system where the heated water has to travel a bit before it gets to the point of use. If you want hot water faster, you'll need to move the tankless unit much closer to where you are using the water.

Thanks Jake and Kevin for your input. Yes, my main motivating factor is economic, but there is also a space issue. The current 50 gallon tank is in a closet under the stairs and blocks the only entrance to the crawl space (I live in a split-level ranch circa 1965). It would be nice to be able to continue to get to the crawl space as I fear a new tank which may be larger in diameter, will completely block the entry, whereas the tankless would open up much more space for being able to fix the "dampness" issue and improving the under house insulation (which is considerably lacking at the moment). I've looked at the hybrid tanks, but at over $1000 each I can't afford them AND I think they are too tall to fit under the stairs. As for an electrician, I have a friend who is a licensed electrician in VA and willing to help me out with installing and upgrading, at the moment I don't think I have 200A service inside the house, but I know I can upgrade to that fairly easily with a new box (which I need anyway). Another part of the issue is that I seem to have a large amount of lime scale build-up in the tank and likely in the lines. The flow rate of the hot water in my second bath is barely a trickle and it is only slightly better in my primary shower. What's the best way to control lime scale build-up? Because regardless of which direction I go with the water heater, it's obvious that lime scale is a problem and will continue to be an issue for either kind of tank and the water lines that flow off it. (why does lime scale not build up in the cold water lines?) Anyway, thanks again for your input, it is definitely something to consider.