Any more details, Stormer. Being a bungalow there have always been problems with hot water flow. If the hot tap in the bathroom is turned on at the same time as the kitchen we get an airlock which has to be cleared by forcing mains cold water back up the system to the hot water tank, The hot water tank was obviously drained to fit the new element. I think you have hit the nail on the head! What to do about it though? :dunno:
35 year old tank might be the problem? Bound to be some, if not loads, scale build up in both the tank and maybe associated pipe work? Being an expert on such mattersh1d1ng2, replacing a hot water cylinder on a like for like basis is pretty straightforward, dare I say a DIY job...
As for the airlock problem, that sounds bizarre. Might be solved by taking seperate supply pipes from the tank to the bathroom and kitchen ..... Which could either be very simple by way of adding a flange to the tank or really difficult depending on how the current pipe work is installed.
Either way there should not be any bubbling when an immersion is on; yes, they do make some noise but it is minimal and certainly not bubbling unless it is turned up too high.
Have a good hunt round and see if there are any pipes that have an angle on them that could trap air. If you find any give them a shake and see what happens, and see if there is enough play in the pipe work to allow them to be wedged into a better angle. However, there needs to be somewhere for the air to get in....... Is the cold water tank as high as it can be? Any height increase will give advantage..... And again this is a straightforward DIY job. Not saying this will solve the bubbling issue, but it might, and it would probably assist if not solve the weird two tap thing you describe. Which sounds like air being sucked down the vent back to the cold water tank? Which might be due to insufficient head (pressure) in the hot water supply fry the tank.
The cupboard will be fine in terms of mould if you ventilate it during the day and close at night, but personally I feel you need to eliminate the cause rather than cover it up. It's like turning the radio up in the car when the brake pads have worn through.
Sorry for the rambling approach.....just trying to think what i would be doing in your position:-0)