If tank is rusted out, then that is caused by depleted anode rod, or tank that is not electrically grounded on hot side pipe.
If pipe nipple is rusted out, then that can be caused by improper connection between copper and galvanized pipes, and caused by non-grounded hot water pipes.
If tank is leaking, replace it.
If nipple is leaking, remove with pipe wrench, apply teflon tape or joint compound on threads, and install new nipple. Replace anode rod if possible. Correct copper-galvanized connections. Add ground wire between hot and cold pipes.
http://waterheatertimer.org/Leaking-water-heater.html
http://waterheatertimer.org/Replace-anode-rod.html
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That's not good that you have water leaking from where the hot water comes out of the tank. I've also got a leak in my pipes somewhere in my house. It's in a worse place than yours is though because I think that it's leaking behind one of my walls. There's a wet spot on the wall, and the water pressure in the bathroom closest to it has less pressure. We should probably both find plumbers to look at and fix our problems.http://bodenplumbing.net/services
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