Yes, DILUTED is a Scrabble word!

Letter values in Scrabble US: D 2, I 1, L 1, U 1, T 1, E 1, D 2.

Is it a valid word?

DILUTED is a valid word in the official Scrabble dictionary (US), the UK Scrabble Dictionary and Words with Friends (ENABLE).

lessen the strength or flavor of a solution or mixture
corrupt, debase, or make impure by adding a foreign or inferior substance; often by replacing valuable ingredients with inferior ones

Also: thin out.