I was actually thinking of the same thing... which would be pretty cool i guess. The story also might be easier to make if it was before diablo 1. Since they could make up most of the stuff and just connect it at the end to diablos 1 story.
Or what about Diablo 3 being set in the present day. Diablos human form could be Bill Gates and you could kill him by running him over with a Ford pickup truck.
I'm actually more interested in Diablo 3 being set after Diablo 2: LoD because I'm interested in what happened to the world ever since Tyrael destroyed the Soulstone....or worldstone? I actually forget what it was.