You have described the typical symptoms of a fractured or deteriorated dip tube. This is the tube that directs incoming cold water to the bottom of the tank. Without it, you will get much less hot water. It often takes a torque multiplier to remove the inlet if the tank is of any age. I advise you call a plumber for this.
: : My hotwater heater is turned up quite a bit. The water is extremely hot yet we still seem to run out of hot water quickly. Also there are these weird white particles that come out of the faucets when the hot water is turned on. They are sort of like really hard plastic or may even ceramic of some sort. I don't know if the problems are related or not. Any suggestions?