Electrical & Water Heater Questions

[Mike M.]

Two questions for you more knowledgable rehabbers: 1. Several rooms in my project are fed with sheathed two-wire supply (no independent ground). Electrician said NEC would allow replacement of outlets with GFCI and "no ground" label. If I can find the lead outlet, can you replace it only and will it qualify the others downstream, or does each outlet have to be GFCI to meet code? I have a water heater in the laundry room. We are enclosing laundry room and making it accessible internally (only access external today). For aesthetics, I was thinking of placing a curtain around the heater. Imagine a 1/4 circular rod with 18" clearance from the heater. Before I leave another unreturned message with the city, what say you? Legal? Wise? Thanks as always.