I'm with Jay, get it checked. The condensation theory is a little hard to buy (though I don't claim it's impossible). As soon as hot water is drawn out, cold water will begin to enter. The cold will mix with the hot, then as the temp. drops, the burner comes on. It seems unlikely that the entering cold water (which, again, immediately mixes with the hot water) would be able to chill the outside of insulated an tank sufficiently to produce condensation; though maybe if the heater is in a heated humid area - maybe. The splashing sound is troubling since he tank is never empty and cold water is internally piped to the bottom of the tank, i.e. the water inlet is always under water.