A recent study in South Africa has confirmed, for the first time, that a vaginal gel formulation of the antiretroviral drug Tenofovir, when topically applied, significantly inhibits sexual HIV transmission to women [Karim et al., Science 329, 1168]. However, the gel for this drug and anti-HIV microbicide gels in general have not been designed using an understanding of how gel spreading and retention in the vagina govern successful drug delivery. Elastohydrodynamic lubrication theory can be applied to model spreading of microbicide gels [Szeri et al., Phys. Fluids 20, 083101 (2008)]. This should incorporate the full rheological behavior of a gel, including how rheological properties change due to contact with, and dilution by, ambient vaginal fluids. Here, we extend our initial analysis, incorporating the effects of gel dilution due to contact with vaginal fluid produced at the gel-tissue interface. Our original model is supplemented with a convective-diffusive transport equation to characterize water transport into the gel and, thus, local gel dilution. The problem is solved using a multi-step scheme in a moving domain. The association between local dilution of gel and rheological properties is obtained experimentally, delineating the way constitutive parameters of a shear-thinning gel are modified by dilution. Results show that dilution accelerates the coating flow by creating a slippery region near the vaginal wall akin to a dilution boundary layer, especially if the boundary flux exceeds a certain value. On the other hand, if the diffusion coefficient of boundary fluid is increased, the slippery region diminishes in extent and the overall rate of gel spreading decreases.