Since the article if focusing on water set point differences and the impact on the wiring, one can assume the concern is at the panels themselves (which are normally not covered, providing a heat sink.) Wrapping the water heater, but leaving a cut out for the panels uncovered would seem to accomplish the goal while allowing higher temp operation of the water heater. There is also a possibility that parts of the terminal block can't handle higher temps, but this seems less likely.
When you do enough process safety reviews you learn how to identify design cases. You do these with reasonable variations in mind (and some not so reasonable), plus some allowance for likely failure scenarios. Since the wires are connected to a heating element that you can be certain will burn out one day (and the burnouts that I've seen were all scaled up/in effect insulated from the water) and you have the possibility of insulation being added, it would be completely irresponsible to use wire that could not withstand these easily foreseen conditions. Even without insulation some water heaters are installed in attic spaces or the like where the ambient temp can be well over 120 F...way over that in some cases...which would constitute design cases.
Doing cut outs for the panels on electric water heaters is the norm. Certainly you want cut outs for servicing it. I have the packaging from my water heater insulation blanket and the install only shows gas although the packaging says for gas and electric. Interestingly, it is not clear from the DOE site if they recommend leaving the cut outs for electric panels off or not. The diagram arrows imply that they be cut and put back into place!
http://www.energysavers.gov/your_home/water_heating/index.cfm/mytopic=13070
Covering the panel with insulation will indeed allow higher temperatures for the wiring than one would have normally because it is losing a heat sink to the ambient air. The resultant local temps will be close to that of the water in the tank, but elevated above that due to conduction from the hot resistance element (worse when it is fouled) as well as electrical resistance heating of the wiring/terminal connections when operating. Since wiring for oven elements work with even more challenging conditions, it would be hard to defend a water heater wiring design that can withstand insulation cover at 130 F, but not at 150 F. Still, this could be the straw that breaks the camel's back for some specific design case: e.g. 140 F ambient air temp in an attic with insulation over the panels and the element scaled up.