to save money buy as much oops exterior paint as you can and use it to fill the weave, then once it is dry, paint the final coat(s) in the color you want.
for diluting http://www.titebond.com/frequently_asked_questions.aspx the manufacturer recommends no more than 5%, but that is for wood joining, for fabric I believe you could get away with more, but I don't have experience with that. (the big thrifty thread or the foam stream thread say up to 50% IIRC)
http://techtalk.parts-express.com/showt ... ing-sealer
a link to people using TBII 50/50