Check this for me please? Feel the cold water pipe and see if its going to the top of the heater marked by the letter C.
On which mark is the thermastat set at now?
It is presently set on HOT.
This sounds like you may have low gas pressure. You will have to contact the gas company and have them come out and put a manometer gage on this. Also this is still under warrenty you could have them come and check it out at no cost to you. You could have a bad gas valve also, which is your thermastat.
Ive never heard of that rubbish before, they are giving you the run around. This is what i would do. Call them have them take it out and get your money back and go but a RHEEME water heater. You still have a warrenty just for the hec of it call them and have them come and check it out. Read this.