This article details that damage that was caused recently by an exploding hot water heater - it looks like it nearly destroyed a house.  Fortunately, nobody was hurt, but they could have been.
If water heaters are improperly set up, this can happen.  Every tank-based hot water heater should have an unobstructed temperature-pressure relief valve, with only an open tube on it diverting steam or water to within 4 inches of the floor.

Otherwise, pressure in the tank can build up so high that it eventually blows out the bottom of the tank and rockets upwards.  The explosion that happened in this story is not the first time this has happened.

Story here:
http://www.kpho.com/news/17189420/detail.html#-