Don't try to thin down veggie oil and use it in an unmodified diesel. You would be taking a pretty big risk.
If you want to make your own biodiesel, the best solution is an 'appleseed' processor. You can make one for somewhere between $100 and $600, depending on whether you buy a new water heater, and what size it is. Mine is an 80 gallon water heater, which can product about 55 gallons of biodiesel at a time. Even so, I make 2 to 3 batches a week!
All told, I have about $2,500 invested in my system. That includes the Appleseed processor, an 85 gallon conical wash tank, a 275 gallon holding/dispensing tote, and lots of other gadgets. It could be done a lot cheaper, but I have other family members pitching in, so there was no need to be cheap. We are set to save about $10,000 in fuel costs this year.
Do a lot of reading over at biodiesel.infopop.cc and biodieselnow.com. Both of those are really good sites. Be careful with journeytoforever.org, they have someoutdated (or just plain wrong) information.