Howdy Cudadan:
I'd suggest that you remove it. Depending on your locale and the weather there you may need it for extreme cold and damp mornings on start up, but it takes typically ten minutes to have a hot water effect on the intake. In that same amount of time the exhaust will heat up the whole area under the intake manifold and carb. Removing the hot water heater is one of the first things I do. I've never noticed a need for it after it is gone.
You didn't say what you are working with, but hood clearance may also be a consideration. You may need that heater space to get your hood closed.
How about reporting the rest of the story. What are you working with?
Adios, David