As I recall it the problem with Digg was that preferential treatment was being given in secret for pay, or that is how things appeared. Also that a voting ring had been established such that ordinary users could never get stories off the bottom spots - they simply got duplicated by part of the 'diggerati' and the alternate story gained the early traction needed to launch it to the top pages. Thus the apparent notoriety, the focus that people crave, that pays users back for their submissions was missing from the loop. Then the redesign came and rubbed everyone up the wrong way; but it seemed to me more like the straw that broke the camel's back (i.e. the last in a line of bad things) rather than a reason in itself.
Similar things have happened at Slashdot, user disenfranchisement as the (new) owners try to screw out every last cent from the site forgetting it needs the community to be what it is. Hit with a second punch of not entirely well executed redesign and you've got problems.
But then I think HN perhaps goes the other way, the more I stay the more I hanker after some simple redesign to address the site's deficiencies (collapsing comments threads for example, spacing the up- and down-vote buttons). I'm a big believer in "if it ain't broke ..." but also consider that a design should move with browser/web developments to, in an evolving way. Mind you dang seems to do a great job with the moderating.