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The easy way to understand lean burn/EGR dilution is to look at the efficiency expression in terms of expansion ratio for the Otto cycle (or the Atkinson cycle, which has a different compression ratio).
Both Otto and Atkinson cycle ideal efficiency are only dependent on compression/expansion ratio. So theoretically, adding more heat (e.g. adding N2O, O2 plus more fuel) doesn't change the efficiency.
In the real world, the compression stroke has some parasitic loss from ring and bearing friction. If you reduce power, you are reducing mechanical efficiency.
However in the real world you also have these cooled metal parts next to the flame that are absorbing heat, and they absorb more heat the hotter temperatures are.
Empirically, lower temperatures more than compensate for the lower mechanical efficiency, if you can hold everything else constant. The thing that is hardest to keep constant with a heavily diluted mix is combustion speed and efficiency.
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