I tried toilet paper round my built in flash but I found it never diffused the light. It just tempered it's strength which just meant I had to use higher ISO or slower shutter speed or whatever, the thing I was trying to avoid. But maybe I didn't do it right.
You're right, it definitely does affect the strength. You'd never have the control and capabilities that you do with a separate flash so I suspect you'd always have to compromise on something.
I'm probably just confused with what diffusing is and using the wrong words (bit embarassing since I work in a camera shop
) because I don't think you can really do it "wrong" so some photos might help.
These two are with toilet roll
There aren't any harsh shadows; partly because the light isn't coming from one harsh direction, and I expect (as you said) partly due to the lower power.
The settings for the first one was 1/160, 200ISO and 3.2, the second was 1/200, 100ISO and 3.2
With no toilet roll
that was 1/60 200ISO and 5.
Because the light is very harsh and direct it's ended up with really bad shadows and generally unpleasant light.
To be fair, the first two also had the camera set to +5 exposure, which I didn't know about when I took this last one.
I don't know if it's officially "diffusing", but it certainly seems to help with the harsh shadows you tend to get with flash - at least with close up stuff. I've tried using torches/lamps to provide the light but it's never bright enough so I think despite using quite a bit of toilet roll the flash must still be packing quite a punch.
Another option if this doesn't really work for you OP, is to hold something reflective at an angle in front of your flash to bounce it on to the ceiling. I think they sell things to fit on top of the flaash that do that too as a cheap (couple of quid) alternative to a dedicated flash.