The Kobo Aura H2O Edition 2 does not have removable internal storage which eliminates imaging a new µSD card.
From some of your symptoms, it's possible that the eMMC chip has reached the end of it's write life and has gone read-only.
If you have calibre with the Kobo Utilities installed, use the Database => Check device database to see if the database is okay. If the database fails, do not restore the databases after the full factory reset
The only option I see for you is to try a full factory reset which can be done two different ways. Before doing either, I suggest backing up the FAT32 partition on your Aura H2O E2 to your computer and then restoring it after you have completed the process. See caveat above about not restoring the databases (BookReader.sqlite and KoboReader.sqlite) after the reset.
See this page:
Manual reset your Kobo Aura H2O Edition 2 for information on doing a manual reset.
You can also try searching for devmodeon in the search dialog. This should enable Developer Mode. If this works, you should see a Developer options item in More => Settings => Device information. On the Developer options pages, you should see a Factory reset your eReader option which does the same full factory reset as the manual option.