Replace it IMMEDIATELY. The problem is not so much that it is bulging, but rather WHY it bulged. It implies that the tank was on the verge of a catastrophic failure, which would have destroyed your house and ANYONE in it. After the new tank is installed verify that the safety valve is ABLE to operate by lifting its lever and making sure the water is escaping somewhere around the house. I had one house where the safety valve opened, but the drain line was plugged somewhere in the walls so the water could not flow.