I have used Titebond and epoxy to glue in rosettes. I like epoxy because it has natural gap-filling properties, but it is a bit more of a chore, due to clean-up.
One of these days, I'll start making my own classical rosettes, but until then, I buy my rosettes from LMI. I have found that they are not always perfectly round, however, and as a result, sometimes the measurements I take for diameters, when used to cut the channels, result in gaps. So on a few occasions I've had to add purfling lines to the inside or outside of the rosette.
When I have to do this, I use "T"-shaped pins I found at an arts/crafts store to hold the purfling lines in place, pushing the pins down into the rosette channel. Here's a shot of the rosette channel with purfling held by pins on a steel string I built:
I know, I know -- the photo shows a couple of newbie mistakes. Like cutting the soundhole and bracing the top before installing the rosette. I managed to recover from them though.
Anyway, I use thin CA to glue down the purfling when I do this. Always, always, give the rosette channel and the edges of the soundboard wood a few good coats of shellac before doing this. I ruined a good cedar top on an earlier guitar because I forgot.
Regarding using watered down glue, I use this technique quite a bit with Titebond when gluing in the top and back purfling because I prefer to install the binding first. I like John's idea of using a sponge. I usually use a glue brush.
For gap filling I usually use medium CA. I really don't care for the way it darkens the fill, though, so I have also started using LMI white for gap filling and then sometimes going over this, if necessary, with medium CA. It's a bit more work, but the results are a somewhat better.
Best,
Michael
Michael McBroom38911.3917824074