Usually. If you paid for drinks would you want them to be watered down? If you needed a cure, would you want the full thing or a diluted version? If you were in charge of advertising a product would you want the full campaign you designed or a watered down version to be run?
But if you own the bar that's watering down the drinks, you might not think of it so negatively. If a criticism in a report is watered down, some will be pleased and may use the same verb- we got them to water the report down. But it is usually negative.