Yea sounds like you have a leak. The best way I've found to seal the caps is to drill a small hole, get some rigid plastic tubing that the airline will fit over (either rigid tubing, or you could mutilate a barbed 3 way). Put the fitting in the hole, and surround it with hot glue on both the inside and outside of the cap. You can even pull it through the hole a bit to draw in the glue. Just don't get too crazy on the inside of the cap or it wont thread down. Also make sure your using an intermediate bottle in line(full of water) to scrub the air, otherwise you'll get some funky stuff growing in your tank... I like running a mininmum of 2 bottles, and I like the ~1 gallon juice jugs (the kind with the built in handle).
As for diffusion, one idea I've used before: a collection bell. doesn't have to be fancy, it can be difficult to keep it from flipping over when full of gas, the surface area exposed to the water is more important than the volume and if you can get some current past it you'll get great diffusion. Right now I'm using a chopstick diffuser(free) with a collection bell collar threaded on to the CO2 airline- made out of a clear plastic lid about 1" in diameter. It's got my drop checker in the green zone, in a tank with poor flow on the opposite corner of a 20L.