*note*
Didn't see the thermostat post until after I posted, you obviously have some idea what you're doing. My guess is the element is corroded; they become deposited with minerals from the water and become far less efficient over time. You have to drain the tank but it's not a hard job. I think they are like $10-$20 to replace.
You may just need to adjust your water heater if it's a new place.
Careful not to burn yourself.
Look for a panel on the front/bottom of w/heater, remove with screwdriver.
Find a small dial (mine has temperatures listed on it), it may/probably has insulation covering it, pull this out to access dial.
Turn to the right in small increments, with screwdriver.
Enjoy your hot water, unless heater (element) is bad.
Answered May 23, 2010
Edited May 23, 2010