And I thought I had problems! I think you need to do some remodeling of your plumbing. First get a larger storage tank, and boost the water pressure from your well. Mine runs around 60 PSI. Second, you will want to get all your supply lines equalized, going from 1/2 to 3/4 to 1/2 messes up things to the extent what your seeing now. Since your pressure is low, when you open the cold up, the hot supply doesnt have enough pressure to keep up with the cold. I have basically the same thing with an instant heater off the cold line at the rear of my house, which will soon be resolved when I replace all the pipes with a main run of 1" pipe and branch off of it to each faucet and heater. I will have 3 heaters, one for each bathroom and one for the kitchen. Currently I have a 3/4" supply to the rear of the house that supplies a heater and cold water for a tub, shower, toilet, sink and washer. The line comes off a 1/2" supply so when a cold faucet is opened the hot drops considerably, same as your seeing, but since my pressure is 60 instead of 35, I still get flow. What you basically need to do is get a full supply like 3/4" to 1" supply to your heater from the pressure tank, boost up the pressure a bit and you should be able to use both the hot and cold at the same time. Be careful boosting the pressure though, you dont know what shape the pipes are in, so maybe 5 pounds more than what you have now.

Frag,

Part of the problem sounds like the tankless coil water heater in the boiler(I think that is what you described) is clogged from hard water. I would start by having the coil cleaned. It is normal with this type of coil to have lower flow from the hot water. But obviously not that low.

Thanks for the replies! It's starting to make sense.