Seaward heater setup
The typical setup on a heater like a Seaward (installed in my '88 35) allows both AC and engine heating. Seawards (WM sells them for about $250 for 6 gal, its all you need, get the stainless model) (and other brands I imagine) have four water connections, two for tank water in/out and two for engine coolant water in/out. On a fresh water cooled engine (at least the Yannie 3GM30F), there are two cocks on the engine in the fresh water system where hoses are attached and led under the sole to the hot water heater. Hot water (actually part radiator fluid) used to cool the engine is cycled thru a heat exchanger in the water heater. If you have no cocks on your engine I image you could tap into the water coolant line coming out of the engine. I don't believe the water heater would cause the engine water flow tobe cut off, but I would read the hot water heater manual to make sure (i.e. you don't want the heater cutting off your engine's water coolant flow, but I don't believe it does). I don't know why you couldn't use sea water as opposed to radiator/fresh water as the heating agent in the water heater; the water is already strained for the engine and I believe the water heater has a zinc (have read Peggy talking about this) that would probably need to be changed more often if sea water was used. But again, check a manual for the heater you are looking at to make sure sea water is OK. Garrett says the water temp may be a little lower than fresh water systems, I don't know, but if its at 140* I don't know why it wouldn't heat the water in the hot water tank.The problem with on demand heaters is they use propane that must have a constant pilot light lit if you want it to work properly. People DIE from propane explosions and CO poisoning, so you MUST get a CO alarm (and I'd also get a propane sniffer) if you go that route.