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It would be much more efficient to use engine coolant to heat your hot water. I have a 6 gallon unit with internal exchanger and 120 for when at the dock. You are correct about the # 8 wire. At your level it is downright dangerous. Alternator output should get to the main buss bar on as short a run as possible using #4 wire; the negative or gnd of the alternator should be at least #4 with known secure connection to the negative side of the batteries. Don't rely on the engine connection in this matter. You will never get more than 50 or 60 amps out of any alternator using the stock mounting position unless you are ready to fry eggs on the alternator.
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