I agree an electric tank won't do because the element is inside the tank and would have contact with the fabric.
In the case of gas, you will loose the connections to the flue when you cut the top off and that has to be delt with somehow. Also I think there is fiberglass lining between the shell and the tank, some kind of cover will have to be made to protect the top edges of that mess. Unless some means of venting the gas burner can be made safe it's surely need to be out doors. I think the idea of a modified heater with big pot sounds a lot more doable. tom
