The denim is decent, although not ideal. Definitely better than the unrated, may I suggest potentially 'fraud R7'. Fiberglass is not that bad though, wear latex gloves when handling it, throw the latex gloves in the trash and be sure to tape up the new water heater envelope and this won't be an issue. Seriously, I freaked about the whole 'fiberglass itch' thing too and when I actually dealt it a few times, I realized it wasn't anything more than a slight annoyance even when I was careless the second time. If you are seriously scared of a minor itch for a few hours, just cover yourself with seran wrap or some other plastic taped on to you so you don't come in contact with the fiberglass. I'm not really convinced this is an issue. I wouldn't blow this garbage into an attic but it seems to be the best option for things like auxiliary insulation to a water heater with the insulating wrap.
If you really don't want to use fiberglass, use rock wool instead. IMHO, cotton insulation is a bit of an expensive joke.
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