Are you using the fresh water tank or the city connection?
At the water heater, the supply (in bottom) and discharge (out top) should be open...that is the valve handles same direction as the water lines. The bypass pass between the supply and discharge should be closed.
If you're on city water, water will come out the cold water low point drain regardless of the valve positions on the water heater. When you open the valves to/from the water heater, water will come out the hot water low point drain. The low points drains are just that...no valves there unless you added them.
The leak at the kitchen faucet I believe is unrelated...still a problem but unrelated to the de-winterizing.
Nights camped in 2013 - 55, 2014 - 105, 2015 - 63