Not sure diluting oil with diesel fuel would do anything about water; it's not polar solvent either. I would send in that oil you drained to Blackstone Labs for used-oil analysis. Only about $25 and well worth it to see exactly what's in there. Here's another $600 vehicle that overheated and condition was caught early enough to prevent permanent damage:
https://jalopnik.com/how-a-28-labora...ine-1795355769
Real way to remove water is to let it warm up completely to operating temperatures. Engines are typically designed to run at oil-temperatures of +220F; above boiling point of water. This ensures that all water has boiled out of oil. That's why constant short trips in city aren't good for engines, it never warms up enough to get rid of water in crankcase.
After getting up to operating temps, shut it down, let cool off halfway or more, then change oil again. This next oil change should be free of milkshake. Otherwise, you may have BHG, or cracked head/block somewhere. Compression-test should be able to confirm or deny that.