The commercial building I maintain had a smell when hot water was used also.We had every conceivable expert in on this problem and went so far as to have the water analyized from top to bottom and comparing the cold water to hot.The majority of experts felt that the heat exchanger was to blame.To make a long story short,the water samples came up normal and it was determined that the odor was just that...no chemicals or foriegn material,just a smell when the water was heated.You may have your water tested for peace of mind,but try smelling hot water somewhere else...I think it always gives off some odor if you are looking for it.

No the water has a real musty, muddy smell.

If your water heater is electric, I suggest replacing the heating elements. It doesn't cost much, is not difficult, and may solve the problem. I've seen electric heating elements from water heaters with a buildup of "gunk" on them.