I have 8 year old American Appliance water heater that is working just fine--but I figured I would look around now for a "smarter" replacement before it dies.
As James and others have stated, the standard gas water heaters only use 40-50,000 BTU's of gas flame, whereas the tankless hot water heaters use 110,000 (for the smallest, one shower models) to 190,000+ BTU's (for the 2+ shower models). So, you may need a larger gas pipe from the meter to your water heater for more gas, a new flu (larger and possibly redone to support the steam found in the more efficient water heater exhaust gases--some even drip water), and you may even need an external air inlet to support the sealed burners in some larger units.
I am also looking at solar hot water heaters too... It appears that this may be a more cost effective use of solar energy (vs the Solar photo-voltaic panels), plus the panels are smaller because they are more efficient at collecting heat (than solar pv panels). On the other hand, there are plumbing changes, new, and probably larger, water storage tanks, and more maintenance. If you have a swimming pool, the solar water systems are a slam dunk in cost savings over time. For domestic hot water, it is probably still not a bad investment. Although, many of the "simple and cheaper" solar hot water systems I have seen around my area appear to have been abandon after only 10 years... It looks like you need to really do the research and find a good vendor/system for long life (glass vs plastic construction, copper water channels, etc.).
For my place, I am not sure I have any good places for the hot water panels (I already installed 3 kW of solar pv panels last year) and tanks (typically, it is recommended that you plan on 20 gallons of hot water per resident per day, and 1.5-2 gallons of storage per square foot of solar collector--perhaps 40-80 sq.ft. for my area south of SF CA--, plus you will still need a gas or electric backup water heater for winter/cloudy days). And you will need to worry about freezes, very hot weather, corrosions and leaks, etc. Some systems need AC power, others use a single solar panel for the electricity, and others are completely passive.
Still looking,
-Bill