at 8900 ft your also going to get incomplet combustion on what ever your trying to burn. removing the lid and seeing a strong blue isn't a good indicator, as when you take the lid off it allows more O2 to get to the combustion process than normal so it could make it appear better than it is. at that altitude you are taking about a 35% hit on the effenciency of the water heater and it can still have incomplete combustion that isn't aparent.
look at all the openings around the water heater. open them up make sure everything is sealled up good. one little spot missed can let the gasses in, especialy at higher altitudes