A complex matrix is diagonalizable exactly when it has a basis of three linearly independent eigenvectors. If all its eigenvalues are one, a diagonalization would have and hence . Therefore the specified matrix, which is not a scalar identity matrix, is not diagonalizable.
For the displayed real symmetric matrix, choose the orthogonal matrix
Its columns form an orthonormal eigenbasis, and
In the orthogonal coordinates , , the quadric surface has equation . It is a prolate spheroid, with long semiaxis one in direction and two equal short semiaxes . The figure gives its principal-axis sketch.
Figure 1.
The diagonalized quadric is a prolate spheroid with semiaxes one and one over the square root of three
. Details.
A diagonalizable matrix can certainly have exactly two distinct eigenvalues: is already diagonal and has an eigenbasis despite its repeated eigenvalue.

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