f) Install in indirect-fired hot water heater operated as a separate zone off the boiler, and set it up with a heat-purging economizer type control. (Assuming the boiler is gas fired and at least 80% AFUE.)
The increased load and higher duty-cycle on the boiler improves the net efficiency by reducing the standby loss of the boiler. A heat purge control (eg Intellicon 3250 HW+) draws the temp of the boiler down after a burn dumping that heat from the hot boiler into the indirect tank (or heating zone) rather than giving it up as standby loss, reducing the losses even further. A decent indirect should give you at least a couple decades of low-maintenance service, and will deliver far more hot water than a typical standalone tank. During the heating season it operates at essentially the same efficiency as the boiler. (80%+) During the summer it'll run at about the same efficiency as a standalone hot water heater.(55-60% with an 80% AFUE boiler). The higher efficiency the boiler, the better the hot water heating efficiency.
For more detail than you probably ever wanted to know see this document:
For the short-story scroll down to table #2- only system #3 has a heat purge control, but if you compare the steady state efficiency vs summer hot water between system #3 and system #2 (the only other indirect tank system tested in that report), you see how important the heat purge control is for summertime efficiency. The heat purge control is an ~$200 cost-adder if installed when the whole thing is put together (more, if done as a separate job), but it'll pay for itself in fuel savings just on the space heating end in only a heating season or two.
The reason the chimney serving only the hot water heater is falling apart is almost certainly due to it's serving only the HW heater. This is sometimes referred to as the "orphaned hot water heater" problem. The BTU-output of a hot water heater is so low that almost all masonry flues are ridiculously oversized for it. The high thermal mass of the masonry plus oversized flue means that the flue liner never heats up, and the mildly-acidic natural gas exhaust condenses on/soaks into the masonry, breaking down the mortar, a handful of years later the thing looks downright pitiful.
If the flue handling the boiler is big enough to take both the boiler & HW heater, a wye-connection joining them together at the entry point to the masonry usually works, and would likely be your cheapest way out.
It's common to add a stainless liner inside a deteriorating terra-cotta lined flue rather than trying to repair a terra cotta liner. With mid-to-high-efficiency oil fired boilers stainless liners are now the standard way to go even if the terra cotta is in good shape, since the higher the efficiency, the lower the stack temp, and the more exhaust condensation you get. Oil exhaust is considerably more acidic than natural gas exhaust, so getting right-sized (for the BTU-output) corrosion resistant liner is the best insurance. It's not cheap, but it's WAY cheaper than rebuilding a chimney. If the flue liner is a lot smaller than than the prior terra cotta flue (common, if they right-sized the boiler for the heat load) it's also common to fill the space with blown rock-wool insulation, which improves draft velocity and raises the temp of the liner above the dew point of the exhaust more quickly.