I am pushing my basement finishing project off for a couple of years, so I will not be moving the water heater in the near future. Is this corrosion bad enough that I need to have it repaired before I end up with a flood?
UPDATE:
I cleaned up the joint with a metal brush. It looks like the buildup of rust and scale has actually sealed the joint up. Here are photos. I am not sure if I should just let it be now. I am scared that if I take the joint apart, the nipple will be damaged.
Best Answer
Yes, I would replace that right away. I wouldn't touch it without the proper replacement parts on hand, since you don't know the depth of the corrosion.
Agreeing with other answers, you need a dielectric between the tank and the copper. Although they claim to be dielectric nipples (T-575 is apparently a dielectric nipple, and I think that's what the label says) I don't see how that is possible as it's directly connecting the copper to the steel.
The corrosion on the steel may also be indicative of the condition of the inside of the tank.