If you have it you might as well paint it. I used bilge coat to paint mine while doing this job and the entire area looked like new when done, very nice indeed. I don't think it "needs" to be done as the rust should not affect the SS water heater much at all.

I honestly do not think there is any danger in the rust stained area. When I replaced mine I simply painted the wooden platform and put the hot water heater back in. You will probaly find that the opening is ony about 1/2" larger than the heater itself. I don't know about other Catalina owners but my hot water heater is VERY effective and it takes no time whatsoever to have hot water either at the dock or underway. Good luck.

I also painted the platform with Interlux bilge coat and the entire surrounding area. With a clean white surface it is easily to notice future problems, before they advance too far. If you don’t notice it won’t get fixed until it’s a real mess. I think many hot water heaters start leaking at the fittings. I doubt that the aluminum tank actually develops holes. The “SS” hotwater heaters have the same aluminum tank, it is just the sheet metal case that is Stainless Steel. I also cut out a rectangular hole in the left side of the plywood frame of the drawer under the sink for easy viewing of the hotwater tank and heat exchanger fittings. I also covered the hotwater tank with a layer of foil covered bubble wrap. You can have fairly hot water the next morning from running the engine the previous day.