Overall this movie confused the F out of me. However the section i wish to provide my interpretation on is the really big itch she had under her pants.
I think Lynch added the scene in to portray Diane's sexual frustration, symbolic of her lack of sexual control over Camilla. Either that, or she just needed a good ol' western wank. In this particular scene you will notice the first time in the movie that her vision blurs in and out. I think that as she was cumming in and out of focus, she came to realise that there were 2 different worlds, the world in its entirety(focused) and the world she fantisized(blur).

My sister and I both believed Diane's vision kept blurring because she just overdosed on something--contemplating suicide and all.

I believe the scene was intended to that Diane was in fact obssessed with Camilla. I believe it was intended to show a Fatal Attraction-type obssession.

Masturbation scence happened right after Diane denied Camilla entry saying I will not let you off so easily.I think Diane was trying to prove to herself that she could get off without Camilla but obviously you could see that she was not enjoying it.