I've used Diafine with Bath A diluted 1:49 for microfilm, to control contrast while still gaining speed; it gives a good EI 100 with Copex Rapid, but the contrast tends to be on the flat side and there's no underexposure latitude at all. Overall density isn't much changed -- Dmax looks very similar to what I get with other films, after allowing for the crystal clear base of microfilm stock.
Essentially, diluting Bath A means less developer will carry over into Bath B, where it is activated; that will result in increased compensating action and further reduced contrast. Working against that, the constant agitation in a rotary processor may tend to wash the Bath A out of the emulsion too quickly, resulting in reduced development that won't be helped by reducing the amount of developing agent present with dilution.
Bottom line, diluting Bath A will result in underdevelopment. If your density is too high, rate the film at a higher EI (try 500, 640, maybe even 800). Given that the developer is fully reusable other than carry over loss of Bath A, you might try developing a single 5x7 sheet wrapped inside a double-120 stainless tank without reels, using the recommended agitation (as you would for roll film) and a full tank of liquid, as a comparison. If you find anithalation dye that hasn't completely washed out of the film at the end with this process, rewash in HCA or multiple changes of water, in a tray or similar to clear the dye.