I personally would set up the enlarger as if you were making an enlargement, i.e. with the lens fitted and focused. This way you can be sure that the light is even. Any diffusion I would apply immediately on top of the plain glass which you presumably are using over your negative and paper. One cheap material I have used for diffusers is white opal PVC, sold in supermarkets as a kitchen cutting board. This is very diffuse and very even but cuts the light by only 1 stop. White Perspex (Plexiglass) would be fine too.
Originally Posted by loman