I won't use my hookah without a diffuser simply because of the noise. I haven't been smoking long enough to know if it actually affects taste.
I bought a box of Mighty Leaf tea on clearance the other day. The bags are a kind of organza fabric instead of paper. I just cut open a corner, dump out the tea, rinse it out, and use a rubber band to attach the bag to my downstem. Each bag lasts about three smokes if I hand wash it with soap between sessions, after that it just stops working. If I don't hand wash it between sessions, it doesn't work right at all.
I've read where people use a piece of nylon hosiery and you can also take a small bottle and fill it full of holes and attach it to your downstem. Whatever works for you.
People swear by their Heba diffusers. Hookah-Shisha has a little explanation about why they think diffusers are so great: http://www.hookah-shisha.com/hookahl...ifference.html
Hope this has been somewhat helpful.