You're using the washable school glue, right? There are two types, make sure you're getting the one marked Washable.
I don't usually dilute and it dries sort of "crispy" rather than "hard", I'd say. It definitely gets stiff, it won't really stay flexible if that's what you were imagining would happen. If it's too hard, try using even less - you can just make little dots instead of brushing it on; think of each dot as a pin. Or hold the glue bottle really high so you get a super thin line drizzling out and lay down very thin lines that way - a little water in the bottle will help with that method too. Honestly though, no matter how thin or thick I've left the glue, I've never had trouble sewing through it.
I machine-wash my quilts as soon as I complete them, so I don't have any trouble getting the glue out. One trip through the washer and it's all gone!