Does the amount of text on a page have an affect, ie does it dilute your keyword density if too much is used and affect you page ranking.
yes it does. The amount of text to keyword ratio is a factor that can help you improve your rank (im not sure if there is a certain % it should be), but if keyword density is too high it can be treated as spam.
I've seen 5-20% keyword density recommeded as optimal... anyone with similar/different notions of what is appropriate?
I don't think it matters much. Once more, I wouldn't even try to reach an "optimum" level as that "optimum" level could change any day. Write naturally and KWD flows from it and you'll never have to worry about it.
Keyword density is nonsense and has nothing to do with relevancy (ask anyone specializing in Information Retrieval). It is keyword frequency that matters. Every additional keyword adds relevancy linearly at first and then tapers off so every additional keyword contributes less and less. In this respect, LONG pages are much better - more keyword frequency, more possible keyword variants, long pages usually outsell short ones etc.
keyword density is there to reduce Bad seo habits like keyword stuffing / spamming. 4 - 10% works with me.