FWIW, our starboard engine (FL120) is plumbed via hoses directly to the stainless, 10-gallon Atlantic Marine water heater in the aft head which is on the other side of the engine room's aft bulkhead. The aft head is in the aft cabin which in a tri-cabin GB is right down in the bottom of the boat, so the water heater is more or less level with the engine.
There is no expansion tank, additional heat exchanger, etc. Coolant comes out of the engine, goes to the coolant inlet fitting on the water heater, circulates in whatever tube arrangement is inside it, comes out the coolant outflow fitting on the water heater, and travels via hose back to the engine.
Regarding the OP's leak, one potential cause of a leak developing could be a sagging shelf supporting the water heater, if it sits on a shelf. This happened to us with the relatively new water heater that was in the boat when we acquired it. The shelf in the outboard head cabinet was not designed or built to support anything near this weight, and after a few years the main support (wood) running under the shelf cracked and allowed the shelf to sag and twist. This in turn put a torsional load on the rectangular water heater. Unfortunately none of this was apparent from simply opening the cabinet.
While we have no way of knowing this, we suspect that this twisting of the water heater eventually caused a seam to start to leak.
We replaced the water heater with the same make and model, but before installing it I built a completely new shelf with an aluminum angle extrusion supporting the length of the shelf and cross-bracing tied into supports I glassed to the inside of the hull. We did this some eight or nine years ago, and we're hoping this very solid base under the replacement water heater will help extend the longevity of the unit.
So far, so good.....
