Without fully understanding the diagram, I think that the AC is electrolysing the water (creating hydrogen and oxygen) and the spark is reigniting it.

Assuming this is correct: is this supposed to improve the combustion of other fuels, or are you hoping that energy comes from the water? If the latter, I recommend that you stop wasting your (and other people's) time - the energy is transferred from the AC supply to the water (as chemical energy), and there will be both electrical and thermodynamic losses, so it will be much more efficient (and greener) to use an electric motor in the first instance.

The mauve glow is undoubtedly due to HV tracking along the surface of the wire. This implies quite large Voltages across the resistor as well, so it is may well be failing due to arcing.

By the way, if the diode did actually block current in its reverse direction the charge in the capacitor would build up until current through the diode stopped in both directions, so the AC would have no effect whatsoever.