I'd say get your diffuser thingy, and leave the flash on the camera. Yeah, not the ideal situation, but it'll be the easiest and cheapest method. As far as interacting with people, once they see that camera on your face, they are going to cheese it up, with no help from you. On the other hand, shots of people interacting and ignoring you (think wedding reception) would be nice as well.

If it were me...I'd jack up the iso, use a fast lens, and do the whole thing in b&w. But that's just me, I love noise, or grain, whatever you want to call it.