The heater already has insulation. The cluttered mess of the room it's is in will have exponentially tiny effect on the efficiency. Unless it was perfectly air sealed and insulated, but even then, most of your loss is in the pipes on the way to the tap.
The best thing you can do with your current system is insulate the pipes. You can buy foam insulation for this purpose at any hardware store. It will not help the first time you turn water on for the day, to be honest. But it's something.
Best case scenario is that you have the temperature setting too low and can turn it up to get hotter water.
Next best scenario is that it needs to be drained and cleaned, maybe even descaled (ask a plumber) and that will give it some new life.