I cannot speak to what is causing your floaty flames, but I can speak to some of the other things. First off, if it’s only two years old, you have a claim on Kenmore, or rather the A.O. Smith Co., for tech guidance on this, since it will still be well within warranty.
As to flue blockage, that’s straightforward. If you turned down the control to pilot and unscrewed the vent assembly, you could peer down the flue and see what’s there. There will be a baffle that you’ll have to pull out and then you’ll have an unobstructed view all the way down. The baffle usually has flanges at the top that rest in slots at the top of the flue. If it is sooty, that will give you a clue to whether the orifice needs cleaning. The orifice in question is not the pilot so much as the burner orifices. If they become fouled, the gas will burn incompletely and soot up the flue. From there, it’s a downward spiral.
You’d want to have a plumber desoot the flue, clean the burner assembly and check for blockages in the vent pipe running through the roof.
If it IS a soot problem, you should get it fixed since eventually it will become a fire hazard as flames billow out from under the tank and set anything nearby aflame.