After reading this post again, i noticed that "a leak" was never reported. Just that the heater "rusted out". Yes, the poster mentioned that he took it out of the plumbing, but maybe because it was unsafe? My guess here, as Richard suggested, may be condensation.

Maybe the OP could chime back in here, and tell if the heater was leaking or not, how bad was it leaking, and maybe even describe where it was leaking from (if possible).