I don't think the AH was the culprit at all here, not one bit. I actually really hope the real money AH hasn't poisoned the well for future F2P MMO's to use the exchange model (Rather than an item shop..IMO, taking a small chunk of in game sales>>>>Selling in game items...as long as games take the needed precautions to stop farmers, which is complicated, yes, I'll admit).
The problem was the complete inability to control gold farming, the severely narrow item system (+Better is always better, rather than items that might be amazing for your build, but suck for another hunter with a slightly different build), the terrible drop patterns, the offensive imbalance of inferno (Making the game about survival rather than efficiency) and the lack for non-item progression (IE in D2 your character power could grow quite a bit, without ever needing a new drop.) Once a lot of those problems had band aids put on them, the game became much better--just the addition of the Paragon system, combined with the "farm slider" made the game feel better. The problem was, the damage in terms of the gold economy had already been done. So the steady "progression" gold offered was nullified--the only way to get a piece of gear was to get lucky enough to sell an equitable piece of gear.
Also, BoE in a game like Diablo is horrible--hell, BoE is just a horrible mechanic in general, that stems from problems that the developers don't want to tackle with more complex ideas (Like a tiered economy). D3's problem was the game was scraped and then remade almost from the ground up, in terms of mechanics, like3 monthsbefore launch--and the overly simplistic mechanics really, really hurt the game. D3 was flawed well beyond the AH, the AH just became it's biggest symptom because, being totally honest, camping the AH was more engaging than killing things in game.
Imagine if instead of just simply swapping runes, you could use experience to improve the effects of different runes (Each rune had a level from 0, which was base, up to, lets say 9). And lets say that you could only do this to, say, 9 runes at a time (You pick which runes you want to augment, 9 to give a little flexibility in builds, but you still have to define a build)--if you want to augment a different rune from your 9, you need to let another zero out, which is a ton of lost work. Also, in game there would be items in game that augmented those effects even more (+Levels to runes).
So, say I used the "Blood Funnel" whirl wind rune, and with a ton of experience I got it to level 4--So now it converted 2.5% of damage to life, instead of 2% and when I was full, the blood would collect and form a small, short lasting shield. At level 5 though, the ability gained some kind of synergy with the life gaining abilities on primary attacks. For example, Frenzy's Triumph rune heals for 9% instead of 6% while blood shield is up.
Now, because you lose tons of experience when swapping one of your selected "built up" runes out--if you find an item that is +2 blood funnel, and you don't have that built up, the item is worth far less to you, even if it's an awesome item. But even more, lets say you find an item that's +2 blood funnel AND +2 Frenzy Triumph, working perfectly with the synergy, this is the kind of item you could almost do a build specifically around--but it's not your build, so despite being amazing, it's only worthwhile to a very narrow sub set of players who are playing with this build. (D2 heavily exploited this with +talent mods)
This kind of diversity keeps markets small, there by decreasing demand on evenamazingitems, keeping prices in check and allowing you to drop tons of amazing items (Because they won't always increase the current players power)..It also encourages alts, and reworking skills (Which puts more time into the game--IE you get some epic +3 skill item, and you grind out a ton of experience to be able to use it.)...The possibilities were endless, they Blizzard just let it all fizzle for the sake of simplicity. THAT was the problem with D3, the AH was nothing more than a symptom.
