Hilo_, that's exactly why they won't do it.
As is currently, all blizzard is instant hypeware (some better reasoned than others), and just about everyone will want their hands on it - that means lowrange pc owners as well.
That's why WoW was already FAR behind the graphics curve when it came out. (EQ2 L2 SWG AO)
That's why D2 was outrageously low-req, even for it's time (and it shows in the less-than-pretty character graphics.)
That's why SC2 really doesn't look THAT impressive compared to other contemporary RTS's.
Blizzard is, and has always been, going for as many buyers as they can, and as such they don't rush for graphics, but they do make what they have 'stand out', in particular with a strong CGI department and excessive commercials.
As for gameplay, I've always felt that Blizzard tends to make it's games a bit too basic.
But then again, ease of game draws people in, in stark contrast to UT2k4.
It doesn't take hours to set up, or hours to play, it doesn't demand an elite set of players who know EVERY little tactical premise the game has.
It's a saturday night game with friends.
People never did play Diablo 2 for the ultimate challenge.. They play it because it's easy and fun coop action that CAN provide a challenge of it's own.
Wil Diablo 3 feel dumbed down compared to what could've been made? Hell yes.
Will that affect it's potential playercount? Positively yes.
Will it make Diablo 3 a better game? That's debatable, like CS vs UT. (quantity vs quality)