Based on the response, it doesn't look like Blizzard's reaction was really about modding, it was about (using this term for simplicity) hacking and redistributing their product.
I remember years ago before D3 came out I ran a thing interviewing a bunch of preeminent D2 modders and they all expressed the sincere hope D3 would allow modding with full support, akin to a worldbuilder/map maker like recently released SC2 did. The conversation was very different back then, though. DRM was what big corporate game makers thought was the future, Blizzard was still very much in its heyday, etc. I think we even reached out to the D3 team a couple times for confirmation of modding support. This was back when Bashiok was still with Blizzard, I think we reached out to him and some others.
I was never personally into mods, myself. I tried MedianXL and some others but I just liked the structure of the official game more. I know for many people they added replayability and enjoyment--I was content to farm until I had perfect gear on the base game, which was literally years.
Zhuge spent a lot of time fleshing out our wiki at the time for mod content--sadly, it looks like the wiki has since been split from Dfans. It still has our old logo on it, though, if you go to it.