Quote Originally Posted by Bob-D659 View Post
Without it, the flue gases from the existing hot water tank would be drawn into the room by the exhaust fan instead of going up the chimney...
Quote Originally Posted by Steve Smith View Post
we need to know if the burner is sealed to the room or if it draws its air from the room in order to make a statement to that effect...
Look at photo three in post #18. The hot water heater is an atmospheric gas-fired type that draws combustion air from the room in which it's installed and vents its exhaust via convection through a galvanized steel stove-pipe chimney. As opposed to the space heating furnace, which is a sealed-combustion condensing type, drawing outside air through one PVC pipe and venting its exhaust through a second PVC pipe.

Balanced ventilation of the space is definitely necessary to avoid problems with water heater exhaust gas. I still wouldn't do this without installing a fast-acting, low-level carbon monoxide detector. Better yet, partition off the furnace and water heater as suggested in post #9. I'd rather see you go digital than die in a darkroom.