The early-DCT (i.e. where the Na/Cl symporters are) is a location of dilution. Water is not absorbed proportionally to NaCl the same way that it is in the PCT.
So thiazides prevent dilution directly at the early-DCT.
Now, the concentration/dilution capacity of the nephron refers to the ability of distal segments to carry out those functions.
Normally, ADH, at the medullary collecting duct, is responsible for the concentration capacity of the nephron. This capacity is dependent on an osmolarity gradient at this segment of the nephron.
Keep in mind that the early-DCT is cortical, not medullary, so preventing NaCl reabsorption at this segment would not affect the interstitium at the medullary collecting duct where ADH acts. Only loops affect the interstitium because the ascending limb is medullary.
**Therefore, if you use a thiazide, thereby making the urine more concentrated, ADH, despite not losing its ability to concentrate the urine based on a reduction of the medullary interstitial osmolarity (as seen with loops), it instead loses its concentration ability because the tubular fluid is already less dilute.**
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Bottom line:
Thiazides directly reduce dilution of the urine; capacity for dilution is unchanged because in no way are nephron segments distal to the early-DCT unable to dilute concomitant to thiazide administration.
Concentration capacity is in fact decreased. In contrast to loops, where the medullary interstitial osmolarity is decreased, in the presence of thiazides, the tubular fluid has experienced augmented osmolarity; in both cases, the gradient needed by ADH to induce passive water flow is diminished.