I think pH is the first thing you should worry about honestly. Ron Rider in his antiquing thread clearly states between layers you should condition to remove excess dye. He gets great results and so have I. Horses for courses.
Well I've done it before without need to dilute the Lexol. Lexol is mostly water anyway, also if you dilute it be sure to use distilled water as the minerals in water can fuck shit up. Also, you're changing the ph the more you dilute, which in Lexol isn't optimal to begin with.