Thanks, everyone, for your speedy responses! I forgot to mention that our house inspector said that the roof was in the top 2% of all roofs he sees, and so was the flashing. This was a little over a year ago. So we're thinking--perhaps incorrectly--that it is a wall problem. Our aluminum siding is ancient and at the end of its lifespan; a chunk of trim blew off in a storm, and two other parts (nowhere near the leak, unfortunately) are loose. We need to get it all replaced but were hoping to get another year out of it first, being broke first time homeowners. I guess what I'll do is get a general contractor to take a look and have him check the flashing while he's at it. Yeck. Homeowning is so fun! :)

Mtrot: There has been a problem with the Whirlpool FlameLock water heaters - many of which have been sold by Lowes. That said, $400 is about right for a 40 gal gas water heater. You will need to get a few quotes, but I'd suggest that you consider an installation from Lowes/Home Depot. You will need a pan with a drain under the new heater (should have been one on the old heater) to prevent the problem you have now. You will also need to decide what to do with the damaged floor. Just an FYI: Often a "leaking tank" isn't really that at all but instead a leaking valve/fitting on top of the water heater that eventually makes its way down the side of the tank to the floor. Just something to rule out.

I'm not clear, did you really drain your tank or do you suspect it's still half full? If you don't open up a hot water faucet to let air in, the water can't get out of the tank. If it's not half full, are you sure that the cold water input is closed completely? Also, is it possible that cold water is feeding back through a faucet (turn on both the hot and cold and the cold will flow back to the heater)

skyclad- Let me again point out that a Pressure Reduction Valve (PRV) should not be buried and the city telling you that lines would have to be dug up sounds entirely bogus. PRV's do not last forever because they have an internal diaphragm that needs to be refurbished periodically (typically every 10 years or so). There is also an adjustment screw that you have to set to get the correct pressure, and sometimes you need to reset it if the supply pressure changes significantly. I'm not saying it's impossible that someone buried it -- in the concrete or behind some sheetrock -- but only an imbecile would do so. You may have a PRV somewhere and just be unaware of it. Or there might not be one, and you will need to have one installed. Finally, when the employee told you 130 PSI was "normal," all that means is that could be the normal supply pressure, not that it would be ok to have that pressure inside the house. Regardless of whether it's 150, or 130 or even 100 psi, as Jake said, you've got to get it adjusted down to no more than 80 psi.