Answer
The diamond sparkles less.
Work Step by Step
Light refracts less when it travels between the water and the diamond, and vice versa, compared to when the diamond is in air. This is because the speed of light doesn't change as much when light enters the diamond from water compared to when it enters from air. The amount of refraction decreases, and so does the sparkle.
Also, the critical angle for total internal reflection (discussed on page 533) increases, so less light is captured by the diamond, and it sparkles less.
