I have a water heater which is over 1 year old. I recently had some basement flooding. After that, the water heater stopped functioning properly. The ignitor properly lights the pilot light, which will stay on. But when I turn up the temperature knob and the biurner ignites, it goes out after a few seconds. The vendor says that because of the water, the warranty is void. I've heard 2 opinions: 1) I need a new water heater, and 2) I may just need a new thermocouple. I really could use some help here.

... possibly because of the water, but I have to ask, where did the water come from in the first place? Is the water heater or a water heater line leaking?

XenoSapien

The newer water heaters have a high limit temperature diode on the thermocouple. If the temperature in the burn chamber gets above 190 degrees at that diode, it shuts off the pilot. Getting it wet has likely shorted it out. You will need to purchase a new diode thermocouple and an igniter and a kit to seal the combustion chamber as you replace those items. You may need a new burner assembly too. You can call the manufactorer and give them the serial number and the model number to get the correct new one. They ship next day but if you do not have a licensed tech doing the work it can void the warranty.
While you are on the phone with the manufacturer, ask him about the dust problem and how to avoid the problem.