My electric water heater is 25 years old. Within the last few weeks it will suddenly not heat water all the time. The first time my brother-in-law told me to hit the reset button. Since I could not find one at all, he told me to turn off the circuit breaker, wait 15-30 minutes, and turn it back on. This makes the heater work and I get hot water. Lately it is happening more frequently (sometimes daily, other times every 2-3 days).
For 2K you are being ripped off. New water heaters are much more efficient than a 25 year old one, so you don't need to upgrade the electrical and you don't need a permit to just replace a water heater (I checked on Dalla's web site). You can get a 50 gallon hot water tank for about 500.00. You need to replace the shut off valve though, that should run 30-50 bucks with labor (you will be without water while it is replaced). Go to home depot or sears and talk to them, installation will be a lot cheaper than the 2k quoted. Replacing a old hot water heater with one that is more energy efficient one will save you money in the long run, maybe 5-10 bucks a month. If you don't have a large family you might look into an on-demand heater.
Your thermostat is needing replaced, but with a 25 year old water heater, it's best to replace with a new one. More things will go wrong with it when it gets this old. It's been a good water heater lasting that long and has served you well; time to retire it and buy new.
I agree with earlier posters that $2,000 is excessive. A 25 year old hot water heater has out lived its normal life. All you need is a hot water heater, and a new valve. A job a plumber can do in a few hours. I will convert from oil heated hot water to electric shortly and the quote I got from my plumber was 4 to 5 hundred dollars. I would get a few more quotes.
I agree that you need to replace the heater. You've been very fortunate that it has lasted so long. $2,000.00 sounds way too high. I'd shop for a new heater at Lowe's or Home Depot and hire a reputable plumber to install it. I think you should be able to get everything done for around $1000.00.