With the batteries installed, when you shake it, do the batteries seem to wobble or shift any? You may need one of those little green spring adaptors that make batteries fit tighter. My Challenger 2 came with one. What do you mean by "screwed in a certain amount of length.."? Or.. Do you mean that you have to leave the tail cap unscrewed out in order to allow batteries to fit? In that case, as I've discovered it won't work either. Maybe there is an adaptor accidently installed in the battery tube that shouldn't be.. The tail cap has to be screwed in all the way in order make proper contact to complete the circuit or something.
The being stuck on lower power situation is common with these multi function button lasers from Sanwu. The "half press" thing is kinda weird. It takes some time to get used to. If you want the laser to stay on a higher setting so that every time you turn it on, it's always on that setting, there's a way to do that. When you first turn it on and half click it to, for example, full power, you have to leave it there on full power for several seconds so that the driver "stores" that setting. So the next time you turn it on, it's on full power right away. Otherwise, if you manage to get it to be on full power and then turn it off after just a couple of seconds it will revert back to low power when you turn it on again. The half click thing is more of a feel thing. It took me quite a while of just messing with it over a couple of evenings to finally get the feel of it. If your tail cap is jammed up, which is likely, then see if you can get another one.. of try and get it unjammed…? Don't mean to insult your intelligence, just musing upon what it could be

But I doubt it's the diode that's messed up. You have to almost go out of your way to burn the diode out on these. Most likely it's your tail cap that's faulty
Take a picture of your tail cap and put it on here