Does taking medication with too much water dilute it or reduce its effectiveness/potency? take medication in the morning with five 8oz cups of water.

No: There is no problem with taking medication with a lot of water. However, five 8 oz. cups of water, while not dangerous, is an unusually high amount of water to drink at once so I am curious as to why you drink so much. If you have excessive thirst it could be a symptom of diabetes so I suggest you make sure you are tested for that if you have not been tested recently.