As opposed to the term "delude yourself", this is also a phrase and is real. It means to spread yourself out so thin(likewater) that you believe something that is obviously untrue.
You were dilute into thinking that she was going to share her Totino's pizza rolls with you. They're Totino's!!
Being happy with your friends and still thinking about a special someone who won't let you be truly happy because they continue to control your life and happiness... but when you let go of that someone... you learn the meaning of true happiness and appreciate the friends you have around you.
I was suffering from diluted happiness because of my ex, but when I learned to let go of him I found out what true happiness really is.