You've probably never been in a home with properly sized ductwork. Don't feel bad, it's estimated that as much as 3/4 of the heating and cooling systems in the US are oversized. 2 stage and modulating furnaces are better, but I've lived in a home with both, and both can be very comfortable and the single stage equipment doesn't make it feel more dry that I can tell. BUt you are correct, multistage cna reduce the sense of dryness you might get with a less than ideal system. THe RH of hot air is lower than cooler air, but cool air can make things feel drafty. That's why radiant heat is popular. You essentially have very, very low air velocities and much of the heat energy is indirect infrared heat which make you feel warmer, similar to direct sunlight. Keep in mind too, that unless you have an outdoor rest control for hte boiler or to sped up or slow the circulator, most hydronic air handlers are single stage for heating. So the heat is no different than a furnace. Worse, as you reduce BTU's to the coil, the airflow speed is usually ocnstant, so air temps get cooler. My point being, that a properly designed and installed furnace won;t make it feel dry even if single stage. But yes, oversized furnaces and those with restricted airflow can. Vairble capacity will always make the system more comfortable, but it will cost more. Radiant heat overall is superior, but the installed cost is much, much higher. That's why it fell out of favor. Same reason drywall took over the market and plaster disapeared. ITs' primarily a matter of cost. It's also why stone and brick homes aren't built anymore and concrete homes are the minority.

1) You would need to get a direct vent gas hot water hater. This vents via PVC pipe. More expensive unit than your regular hot water heater but more efficient, quicker recovery time and probably would save $$ since you wouldn't have to deal with building a chimney. The piping could run through the crawlspace but it HAS to vent to the outdoors though. I don't remember where in CA you are located but if there is no snow then the vent shouldn't need to be that high off the ground. Also I think there are restrictions on how close the exhaust can be to a window, etc. 2) While there are devices that don't require you to have to have a loop back for the recirculating pump, the loopback is the best way and the only way I would do it personally. Otherwise you cold water line is used for the loopback and the cold water becomes warm. If you were getting hot water pretty instantly in your master bathroom, where the water heater was currently located, then you should only need to run the recirculating loopback to this point or even the bedroom point in the crawlspace. 3) Unlike the gas water heater you have now, which will still operate in a power failure, the direct vent will not. They have an electric fan, that blow's the exhaust out. Some even have electronic ignition. You still would have the amount of hot water retained in the tank though to use and you always could install a battery backup unit on the hot water heater so it could still operate. I figure this should be done for around 4K or less. I had a brand new direct vent furnace installed for like $2500. My old furnace was not a direct vent and they hat to run PVC piping to the other side of my basement and out the wall. Of course if you live in the land of power outages, you can then just buy a whole house backup generator :). Also, make sure you get prices from other plumbers because those prices were ludicrous.

Most residential water heaters use a 3 inch flue pipe. The flue serves the same purpose as a fireplace flue, to carry the products of combustion outside the living space. If a gas appliance is installed in a restricted area (and just about ANY closet IS a restricted area) it requires vents to supply the combustion air. Two vents are required, one near the floor and one near the ceiling. These vents can be as simple as opening in the walls to a larger area in the house or actual 'pipe' that leads to the exterior of the house. These supply the fresh air to the unit so it can burn the gas correctly minimizing the production of carbon monoxide. If the intakes are not large enough the heater can have a hard time developing a draft in the flue pipe and spill combustion gases into the living space, including carbon monoxide. Creating a new flue can costs many hundreds of dollars depending on where and how it has to be run to get outside the house. Most of the time they must be run all the way to the roof. There are options that can exit lower through a wall, or even be power vented. If you get a power vented water heater it will NOT operate when the electricity is not available, unlike a plain jane gas water heater that needs no electric power.

6 gallon 2k watt pos shouldn't suffer momentary drop at a basin but might suffer slightly in a shower but not enough difference to make it uncomfortable. You have some options but shouldn't be attempted with instructions on the web. (1) If a new circuit must be run for heater,make it 240 volt and use an oversized 3.5k to 4k element. That's enough for unlimited continous use. If you are using an existing 20amp/120v circuit and nothing else besides lights are on it, the t-stat can be adjusted to come on a few secounds sooner IF NEEDED. Before readjusting stat,clamp a meter on to wire and see how long before stat kick's in. It should be very soon on a well desighned heater. All that's required is aiming cold inlet directly at stat sensor. Mention was made of recirculation. I would never retrofit for continous circulation,it wear's lines out. New build have specailized lines for continous circulation. I've had satisfactory results installing pump wired to occupancy sensor or a manually operated wall switch that times out after 10-30 minutes. The down side to retro circulation is that some facuets will have hot water on cold side when pump is operating and shortly thereafter.