The floating baffle does nothing, so if it fails, nothing will happen.
A Megaflo, like other unvented cylinders, is just a tin full of water. Cold water is applied at mains pressure at the bottom, and this displaces the heated water out of the top, when you open a tap.
Heatrae Sadia marketing would like you to believe there's more, but there isn't. The floating baffle was intended to separate the air from the water, but this doesn't work, a fact now acknowledged by Megaflo on a large label on the side of the cylinder.
You've opened the T&P valve (never a good idea) and hot water comes out. There isn't a way anything but water of the same temperature can be produced at the top of the cylinder.
So, although I am the last person to advocate a Megaflo, there's nothing wrong with yours. The water is being mixed further down the line with cold, as everyone has told you.