[B]Trying to decide if this unit is salvageable or needs to be removed in preparation for a newer more efficient furnace or HVAC system.[/B]
Does the old fiberglass covered ducting need to be replaced regardless?
Thanks in advance for any assistance you may be able to provide.
-Mark[/QUOTE]
Seriously, if this beast is over 20 years old (and it may be old enough to qualify for an AARP card :-) ) any money spent on maintainning or repairing it is wasted. If history is any guide it's probably at least 2x oversized for your design day heating load (likely more), and is probably running under 70% efficiency, even if it's as-rated AFUE the day it left the factory was 78%. If your AC of similar vintage & condition that too needs to be looked at with a jaundiced eye.
With a zip code (for weather data) and a heating-season's worth of gas bills it's possible to figure out what a "right sized" gas furnace would be. In many SoCal homes even a smallest-in-class condensing furnace may still be oversized, in which case a variable speed R410A-refrigerant 16-18 SEER heat pump for both heating & cooling might be the better investment. (If yours is an open floor plan odds are you'd get a coefficient of performance of ~4 or better during the heating season using a ductless split system, which would be cheaper to operate than condensing gas (even if you sealed the ducts), and way cheaper to operate than a ~70% efficient gas burner located in an unconditioned garage. With a ducted heat pump your COP would drop, and you'd have duct leakage losses, but most would still be operating-cost competitive with condensing gas.
As long as the ducts are air-tight, the small amount of surface damage/wear on the insulation isn't much to be concerned about. The lack of mastic-sealant on the galvanized ducts (particularly but not exclusively the el below the fiberglass insulated duct) is an indication that unsealed ducts are probably wasting double-digit fraction of the heating fuel being directed somewhere else, while sucking up garage fumes and creating pressure differences between rooms that drive air infiltration rates. IIRC CA Title 24 requires duct leakage testing & remediation to some limit whenever HVAC equipment is replaced/commissioned, as well as some maximum oversizing fraction on a Manual-J type heat gain/loss calculation (which is easily & often fudged to the high side even by well-intentioned contractors.) Whether you keep the ducts &/or furnace or not, sealing all joints & seams the ducts and taping every seam on the furnace with FSK tape is a good idea.
The burner on the gas HW heater visible on the edge of the picture is probably big enough to cover both space heating & hot water using an air handler with a hydronic coil, which may be cheaper and would as-efficient as replacing the existing unit with a right-sized 80% AFUE heater. With a hydronic coil & air handler the leaking heat exchanger problem simply doesn't exist. (eg: [URL="http://www.firstco.com/products/aqua_therm.asp"]http://www.firstco.com/products/aqua_therm.asp[/URL] or [URL="http://www.pmpairhandlers.com/"]http://www.pmpairhandlers.com/[/URL] or [URL="http://www.ableair1.com/pdf/apollo_brochure.pdf"]http://www.ableair1.com/pdf/apollo_brochure.pdf[/URL]) At a later date when it's time to replace the water heater, a condensing tank (or tankless) HW heater could also still be used, and efficiency would be quite high. Air-handler type combi-heat/hot-water is a pretty straightforward & simple solution using plain-old standare HW heaters when design condition heat loads are under 25,000 BTU/hr, which is common in SoCal. The raw combustion efficiency of a plain old tank heater is ~80%, and since you're already paying for the standby losses on the water heater, raising the duty cycle by putting that burner to use for space heating only increases net efficiency. It doesn't take much of a coil or air handler to deliver 25KBTU/hr with 125-140F water, but you still have to do the math on it. Overdesigning for actual loads can still be cheap to implement, but with too large a coil you can end up shortening the lifespan of the water heater (due to excessive condensing-mode operation). If done as a DIY, design it, don't hack it, and the water heater will last as long as any.
BTW: The galvanized fittings it looks like someone retrofitted on to the gas lines wouldn't pass a code inspection many places, and used to be banned nearly everywhere (not sure about SoCal.)