Extreme shortage of hot water is usually caused by the dip tube failing. The cold water connection has a plastic tube that goes down to the bottom of the tank. If this tube falls off or deteriorates the cold water shorts circuits across to the hot water outlet also at the top. Remove the cold water connection and check to see if this dip tube is ok. Places like Home Depot have new ones. They also usually have a cut away hot water heater to show you whats inside. See link below for more info on hot water heaters.
