I'll bet that's why he's been waking up and wanting to eat so often through the night when he used to sleep through. By diluting it, it solved one problem but probably created another since he's getting a little under less than half the nutrition and milk solids than he was at full strength.
There's no reason the bottles need to be filled to the top, is there?
I know how you feel about not wanting to keep on doing bottles. We only thought we'd be keeping this kitten a few days so I grabbed a can of KMR off the shelf at $7.19 for 12 ounces. Grabbed two more when we needed a few days and then when we decided to keep him until he was weaned and could go to his family I brought home the powder. He did *terribly* with it--couldn't fill him up, frantic and upset at feedings, not feeling well. Nutritionally it should be the same but obviously he didn't think so! the upshot is that we have done cans the whole time and it's cost an arm and a leg. He's eating solids well now but still takes some KMR mixed with wet food and still has about 2 milk meals a day. It would make my life much simpler not to mention far cheaper if he made the leap totally.