The league isn't watered down but the talent is terribly distributed.
Think of most of the upper-echelon players in this league. Paul George, Jimmy Butler, DeMarcus Cousins, Anthony Davis, James Harden, Damian Lillard, Drummond. Noticing a pattern? They're all on mediocre to flat-out terrible teams.
And a lot of the guys in this league with potential, like Towns, Giannis, Wiggins, Booker, etc, are obviously all still young and their team situations need time to develop.
The fact that teams consisting almost entirely of role players like Atlanta and Boston were such high seeds is a testament to the fact that most of the stars in this current NBA are in trash situations. With his talent Paul George should be given a team that has 1 or 2 seed potential ever year.
That leaves very few actually good teams to challenge GS. It's Cleveland, OKC, and San Antonio. It's not some kind of weird coincidence that the West was horrible this year.
In a few more years, hopefully all the guys I listed end up on better teams or recruit better teammates. And hopefully a lot of the young talent I listed pans out. I think the NBA has the potential to be ULTRA competitive real soon but right now it's a in a very weird gray area.