Didja measure the water temp? (At the tank drain first, then at other taps.)
A defective mixing valve at some tap might be mixing in cold with the hot distribution lowering the temp at some other location.
If the dip tube is broken off inside the tank it could also be mixing in cold water right at the top of the tank- thermostat could still be fine, but the output water on the not-so-hotso side. The temp would drop fairly linearly with the volume drawn, since the average temp falls with the dilution of the top-fed cold water.
If the temp at the tank drain is over 120F when the tank thermostat is satisfied and there hasn't been a recent hot water draw, the thermostat is likely to be fine.