It never hurts to insulate the hot lines. Not all systems are created equal, but yes, they do work. The longer the heat exchanger, the more heat it can extract. Dana has studied this a lot, I'm not up on the variations between brands. They're big in Canada since their climate makes the incoming water colder, so you use more hot to get the desired temp...warming up the cold means less hot to use. I'm not much further north, but I've measured incoming cold water at barely above freezing after a cold spell. The better ones use square tubing and split the stream into more than one to get more heat exchanger surface area.