Water – the cheapest way to make well water with 800ppm TDS suitable for bathing and washing dishes

You're adding more points of failure, and when the small tank runs out, you will see a temperature drop until the tank fills with hot water from the reserve. You also have to worry about eventually reselling the home. Given that, my preference is to keep it simple with a single tank.

One option to give you the same effect is a single electric tank with the lower element turned down. You are then only keeping half of the tank hot but can easily adjust it to have full capacity.

This is a very common setup, and basically the situation in my house. What you need is called a shallow well jet pump, and I believe this is what you are seeing in the store. Your suspicion is correct - that local mechanic is wrong. Some notes:

1. Size the pump 1/2 or 3/4 hp based on the flow rates and demands you expect. There's insufficient details to provide an accurate recommendation here.
2. You will need a pressure tank ("bladder") connected to the line after the pump in order to even out line pressure and prevent the pump from turning on all the time. This will very greatly extend the life of the pump.
3. To keep the pump primed, you need a foot valve or check valve on the end of the line that is submersed in water.