Does the U tube (intake) for the canister filter reach down towards the bottom to where the holes for the separater are? If so, I think either the holes need to be towards the top to force the water to pass over your heater, or the intake for the canister needs to be at the top, to force the water to pass over the heater.
It seems to me that the heater is heating that compartment without much water flow going over it.
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