Replacing a hot water heater: tank or tankless?
I would check the operation of the heating elements. On my heater, when the lower element burned out, we had a reduced quantity of hot water (basically the top half of the tank). Replacing an element is much cheaper than a whole tank.

Response to comment: I wouldn't recommend doing it yourself unless you are knowledgeable and comfortable with electrical work. That said, I checked mine with an ohmmeter. This page has more details:

http://waterheatertimer.org/How-to-test-water-heater-element.html