Leave the water heater on?
You will always (always!) save energy by turning the heater off when you don't need hot water.

How much energy you save depends on the efficiency of the water heater but you will always save energy - it doesn't matter what size your tank is or how well is is insulated.

The ultimate reason for this is "the rate of heat loss of a body is proportional to the temperature difference between the body and its surroundings."  (See http://en.wikipedia.org/wiki/Heat_transfer#Convection-cooling)