Well the only reason you would have to replace your hot water heater would be if the tank corroded through and was leaking. You could replace the gas valve/thermostat for a total of around 300 bucks. The part should run 85-150. Total cost of a replacement water heater installed would run 5-650 usually. A.O. Smith makes the best water heaters. Although they are more expensive, and I usually install G.E. water heaters from Home Depot because my customers dont want to pay for the better brand. There is a brand that I believe Lowes sells called Reliance or somthing similar, that brand is garbage dont buy it.

Is it not a good idea to drain water heaters every year to remove sediment? It may be too late for OP, but I thought this maintenance procedure is supposed to help keep the heater working at max. efficiency. I am trying to get DH to help me drain ours. Should I bother?

"I have my water heater turned up all the way to max temperature now because it will even run out of hot water when i almost have the bathtub filled up."
- Bathtubs use a lot of hot water. Do you experience this problem only with the tub? How about the shower? Maybe the unit is undersized and you need a 50 gallon tank.

I can't see how running out of hot water is a sign of impending failure, unless the burner's failing to light.

They do require a little periodic maintenance to the burners, don't they? Perhaps that'd restore performance, but I always understood a hw heater was shot when the water started to leak out of them....

ater heater life depends on two main factors, how good your water is and how often you maintain (flush out) your water heater. Draining sediment once a year is usually adequate, twice a year is better. Some water heaters have an anode rod designed to corrode before the tank does, this rod is usually replaceable. In my experience I have seen that byu the time a water heater is old enough to develop burner/control problems the tank has either rusted out or is close to rusting out and it's best just to replace the whole thing. A properly maintained water heater should outlive the family dog.

There are minerals and traces of other chemicals in your water. When the water is heated, they get together with any exposed metal in your tank and form precipitates. These are solid paricles which fall to the bottom of the heater, where the burner is. As they collect, they form a layer across the bottom. This layer becomes thicker over the years. By the time you start to notice hot water shortages, this layer is probably a good five to ten inches thick.
The higher you turn the temperature, the faster the precipitate forms.
The anode rod is a sacrificial piece of metal which dissolves more readily than the steel tank. It lasts around three years.
Your hw tank is lined with glass. But the seam on the side of the tank is welded after the tank is lined, and so the glass melts.
So,
to make the heater last a long time, drain it once in a while, change the anode rod once in a while, and keep the temperature low.
There are only three manufacturers of residential water heaters in the US: Rheem, State, and A.O.Smith. All others have contracts with these manufacturers. Read the fine print on the label on the water heater. They have all been in business for a long time. If one is worse than another, it won't stay that way for long, because it will lose business.
State has a patent on a special fill tube that circulates the water and keeps precipitate in suspension, but big bucks. State has sued other manufacturers for infringement and won. Otherwise, as far as I know, they are all pretty much the same.

in other words, properly flush the tank several times and try it then.

At this late stage in the game, the particles have joined and solidified into a mass. Draining the water heater may encourage particles attached to the side to break loose and pull a weakened kernal of oxidized wall metal into the mass as the water level falls. Where the water pressure had been supporting this weakened area, now there is only gravity.
Replace the water heater.