Are water heater blankets a good idea?
A lot of water heaters (that I've seen anyway) are in unheated spaces -- basements, garages, attics (in some countries).  The rate at which you lose heat from the water depends mainly on two things:


the difference in temperature between the water and the outside environment.  The greater the difference, the faster the heat loss.
the R-value of the insulation between the water and the environment: the higher, the better.


The tank will provide some insulation, but adding a blanket for another layer of insulation will definitely help.  How much it will help depends on the temperature of the water and the environment the tank is in.  

(The surface area of the tank is also a factor in the rate of heat loss.  While adding a blanket will increase the surface area, the savings by having the extra insulation will more than offset the loss the extra area will provide). 

If anything, insulating should lengthen the life of the heater because it wouldn't have to work as hard maintaining the water at the set temperature.