It is called blue iodine, cause it has deep blue color. Iodine makes blue colored compexes with dextrines alike (component of starch). The point is, this complex is still potent, has antibacterial properties, but does not give anyone chemical burns, compare to a free iodine tincture.
So, yes it is dilute, and it is not iodine any more. Body can metabolise this iodine chemicaly bonded to starch.
And speaking of wood spirits at such a diluted levels you will get more of "bad" things with a glass of wine.
I dont take drugs, even panadol, and blue iodine worked for me, where i could not recover using herbs. Now you know about such a thing and one day might use, or not, or whatever. I just want to share.