Oh it's terrible news on the plumbing. My house was built in 1963 (it's younger than me, I wish to point out) and standards have changed a lot since then. When I first moved into the house only two outlets had been adapted to 3-prong, so I grounded the outlets and put in the 3-prong. My built-in wall oven is not standard to today's models in addition to being hardwired into the wall, no plug for it or the burner top. Cabinets are built in, not custom sizes, can't just take out a cabinet and put a new one in.
Anyway, the tank is about 8 years old, at the end of it's product life. We replaced the expansion tank but it didn't solve the problem, to get to where they think the problem is they have to pull out the heater. No guarantees that the heater would survive the move and/or how long it will last after the moving -- could be another 8 years (unlikely) it could be two weeks... The opening is very small, 18", the heater we put in there was the only one that fit at the time. There are no heaters rated for the size of house demand that will fit in the space (that is, we might be able to find something for a mobile home or RV). The only option in the space we have is to go tankless, his rough guess (and he isn't a tankless guy) is that would start somewhere about 6-10k and require venting into the attic crawlspace. We discussed other options, originally there was a half height tank in the "dead corner" in the kitchen -- not big enough for current standards.
So my quilter brain went into action, the most cost-effective option is to make the space we have larger, except that the water heater is between the masonry fireplace wall and the furnace. But we can build/frame out the space (it's a garage converted into a family room). It will be awkward as heck really and not ideal but we can have a nice 24" diameter circle big enough for many options and plumbing changes would be minimal since we are essentially going to the same location, yes connections will need to be changed out but no cutting out the concrete or super expensive stuff.
Sometimes it helps to have a background in construction. But the hubby isn't taking it well at all. He had budgeted it as a $300 repair and not a $3.5k one. But, a gal needs hot water to wash her hair and her fabric so we gotta do what we gotta do.