Okay, so. One at a time:
If I use the GW airbrush to basecoat a model, say Knarloc green, do I still have to undercoat it first, or will this do?
Are you meaning do you have to prime the model black, white, or gray before putting down the Knarloc Green?
Because if that's what you're asking... you ALWAYS prime a model before basecoating. Always. It ensures that the basecoat will stick better, and ensures a good, solid coverage over the bare metal/plastic.
How good a coverage does Iyanden darksun have over above mentioned knarloc green? is my hope for full cover a bit too much to hope for?
It should have a good coverage, to be frank. I don't see why it wouldn't. However, I'd have to know what you're trying to accomplish(is the Darksun being used as a highlight for the Knarloc Green? Are you using it as a cloth color or the like?) in order to better answer.
When you guys use the GW washes, do you dilute it with water?
Not really. You can use it just fine straight from the pot, and watering it down even a little bit can cause it to pool oddly. However, don't put water into the actual pot of wash. When your brush is loaded with the wash, just barely dip it into a cup of water.
Can the GW airbrush be used with the GW washes?
Probably. I wouldn't suggest it though, washes tend to be a bit difficult to really get to work with an airbrush. The whole point of a wash is to sink into the crevices and bring out the shading that way, but spraying it on might lead to some weird pooling effects on the models.