I would argue the pirating issue. If you want to go illegal, you can just find and copy over the D2.exe (I think that is what it was) to make D2 playable without CD - same with D1 (and you can just google a compromised key for the installation). Now, if you pirate DIII, you actually have to reverse engineer the server because loot tables etc. are server-based and not on the client. Now, that is risky if you trust the hackers and install their server package on your computer. Thats like asking hackers "Please do whatever you do without giving me a trojan, please with whip cream and cherry on top." or you log in on an illegal server just to wait until Blizzard's legal team wipes your progess by shutting it down.
Ah so you agree with me it's simply a piracy issue then, has nothing to do with cheating (since that was my initial point).
But frankly, they could have gone the D1 way, seperate single and multi player characters, and it would have alleviated the concerns. They didn't, saved the time and are still racking in the cash.
In the end, a few customers get burned, Blizzard saves dev time and money. Typical corporate choice.
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This is pretty much the future of gaming, less and less will done on your home box, and more of it will be in the cloud, most game companies will become services like Onlive where everything is server side. Personally I believe this will actually increase the longevity of games, as your personal systems specs, graphic cards, even OS becomes more irrelevant.
Diablo III's system and Onlive have very little to do with each other. MMOs and games like Diablo III do very little processing server side, only sending status and small data chunks for modifying your player model and position. Onlive streams input and display from and to your computer.