Think of Crazy diamond's fixing powers like this:

If it's BROKEN then it can be FIXED by him, it will return to a previous state fully, or partially depending on the user's wishes, like he did the guy that talked shit about his hair.

The thing is, there's nothing inherently broken about Okuyasu's father, like Keicho said, he's perfectly healthy, it's not a sickness, and he heals himself if he goes through harm. The idea here is that due to Dio's death, the flesh bud went berserk and started fucking with him on a biological level, by modifying his genes i'd assume, which made him something different, so there's nothing to fix.

Even if he punched the shit out of him until nothing was left and immediatly healed him, he would just go back to being the green goo man.

And before you ask why did Okuyasu simply use THE HAND on him. Well for starters i don't think he'd have the heart to do that to his father, also because we don't know where THE HAND sends stuff too, it could be complete utter destruction, or it sends people to some type of void, so they wouldn't want to take any chances in sending him to god knows where and somehow he manages to be alive in there.

I wouldn't assume the flesh bud is still causing this (and by extension wouldn't die in sunlight), whatever damage it caused is done now. Can't unboil the egg.