1. Loot quality & forced AH (not an issue).
2. The auction house (a problem, but not a core issue).
3. Everybody seeking the same stats (not an issue).
4. Lack of affixes and stats (an issue).
5. Cumulative stats (critical issue).
6. Dupes/hacks/bots (not a core issue).
7. Lack of diversity in the types of items available (issue).
8. Weapon damage dependence (issue).
9. Crafting is a failure (issue).
10. Linear item progression (critical issue).
11. Irrelevance of low level items (issue).
1. Loot quality & forced AH use.
I first wish to get this one out of the way, since I see it come up frequently yet I think it's completely incorrect. A common claim is that specifically the quality of loot, as in its effectiveness/power, is too low, forcing people to resort to lame ways to acquire loot (RMAH/GAH/botting/scamming). To refute this claim, one need only to realize that if one defines the quality of loot in terms of what's available elsewhere (such as the GAH), then there is literally nothing Blizzard could do to the loot in this game to improve the quality.
To take a simple example, if Blizzard doubled the quality of all dropped loot, then this would simply double the quality of all the loot that appears on the AH. So dropped loot relative to AH loot would be identical. Thus, loot quality should be defined in terms of its effectiveness in clearing the game's content.
So how effective is loot for this purpose? Well I recently ran a little experiment. I wanted to see how long it would take me to take a character to A3 inferno and acquire enough power to farm with reasonable efficiency (killing champion packs in 10-20 seconds) without using the AH. If you check my profile, this character is my softcore barbarian. After a grand total of 20 hours /played (only 6 hours in inferno), he's efficiently farming A3 inferno using nothing but self-found gear. His gear would be called complete and utter garbage by anyone who complains about loot quality, yet it's good enough for farming a difficulty that was designed specifically to be an extreme challenge. Loot quality is a non-issue. If anything, loot quality is a little too high.
2. The Auction House.
In my opinion, the AH was a huge design mistake for a game like Diablo. I think even the developers have realized this by now. If you spend your gold upgrading your gear on the AH, then the moment you hit 60 you will immediately put your gear at a level where it's almost impossible to find upgrades. With even just 1 million gold, which is easily obtainable by level 60, you can buy sufficiently good gear to farm at a high enough MP to make infernal machine runs efficient. This is a nasty trap for players who don't realize it.
Having said that, there is a rather obvious solution. Don't use the AH. You don't need to, and the game's far more enjoyable without it. So as big of a mistake as this is, and as responsible as it is for a lot of the complaints (people who complain about never finding upgrades invariably are those who used the AH), I don't think this is actually the root of any real problems with the item game. The lack of trading community outside of the AH is an issue, but it's tangential to the point of this thread.
3. Everybody wants the same stats.
This is another common complaint. Everyone wants crit/crit damage/primary stat/vit/all resists/armor/attack speed. While this is an issue, I think it's actually not as severe as it's made out to be. If you look at D2 and D1, you'll see the scenario is really not that different. In D2, everyone wanted vit, (attack speed OR cast speed), all skills, resistances, faster hit recovery, dual leech if melee, and I'm probably forgetting a few. While there was more diversity in D2 in who wanted what stats, the difference is greatly exaggerated. There are, however, some other critical differences, which I do think are relevant and are explored in other sections.
For clarity, I should add that this is specifically about wanting stats in common with everyone else, not the issue that we only want those stats, which is a problem.
4. Lack of affixes/stats.
The game just doesn't have that many different stats/affixes. I argue that this is a significant issue. Hit recovery from D2 is gone. Attack rating is gone. Crushing blow, open wounds, dozens of interesting or important procs, all skills, + specific skills, absorption, item skills, auras, and many other interesting and game changing affixes are just gone, without even remotely sufficient replacement. This makes items inherently less interesting, because the base affixes that everyone wants (primary stat, crit, etc.) are really all there is to look forward to, along with some largely irrelevant ones that just make your items worse. To make matters worse, the value of an affix can be determined almost entirely through how much it increases your DPS on-paper, or your effective hit point pool. Now that's boring.
One thing to note, however, is that even if new affixes were implemented, they would have to compete with existing ones. This leads to the next issue.
5. Cumulative stats.
This is something I don't think I've ever seen mentioned, yet may be one of the biggest underlying problems with the loot system in D3. You can't get enough of crit damage, crit chance, attack speed, your primary stat, vit, all resistance, or armor. Or pretty much any stat (one of the only exceptions is increased gold/health globe radius). What this means is that if a single item for a given item slot (e.g. inna's pants for leggings) rolls a certain affix, let's say attack speed, then every single other item ever designed or rolled for leggings has to compete with attack speed. Every single 2-hander ever rolled or designed has to compete with the crit damage of skorn. Let's look at D2.
Everybody wants resistances. Everybody wants attack speed (or cast speed, if a caster). BUT those are only effective to a cap. Resistances have a hard cap of 75. Attack/cast speed has breakpoints, and is only effective up to a point. In fact, almost all stats in D2 are like this. What this means, crucially, is that you only need enough of your items to have those stats as is needed up to cap. In D2, resistance was very common in large amounts on shields. If stats were like D3, then shields with no resistances would see very little use. But because of the hard cap, you can get all the resistance you need from other item slots or skills. Thus if you find an awesome new shield that has no resistances, it isn't automatically garbage.
Suppose D3 adopted this. Then suddenly, a weapon largely comparable to Skorn but without the crit damage isn't automatically garbage. If it has an awesome affix on it that you want to use, then you could get your crit damage from other item slots. Furthermore, once you had enough of core, base stats that are essential to your character, you'd be free to acquire interesting and flavourful affixes that seem most appealing to you. Without something like a cap, or sharp diminishing returns, then even if Blizzard implemented new interesting affixes, they would have to compete with existing ones.
While these are certainly issues and Blizzard must take active measures against them, I don't think anyone can argue that these issues are worse in D3 than in D2.
7. Lack of item type diversity.
Diablo 3 has no charms, no jewels, no elixirs, only one type of potion, no runes, and no new item types at all except for crafting tomes. Furthermore, gems are even less diverse than in D2 (how the heck did that happen?) While I don't think the lack of any specific item type from D2 is an issue, the fact that there aren't ANY new item types, beyond tomes for crafting, is an issue. There are many, many things Blizzard could have done here. But it seems all ideas were scrapped, probably mostly due to inventory issues. There are plenty of new items one could implement with their own various pros and cons. The point is that in an item game, there should really be more kinds of things dropping.
8. Weapon damage dependence.
This is a common complaint, and one I think is correct. Aside from making items more homogenized, it also greatly reduces the pool of potentially viable items. There are obvious ways in which it does this: a weapon that rolls no damage affixes and thus has only 200 dps is not going to be viable. Period. (There actually might be exactly one exception when it comes to barbarian off-hands, but the point stands). This is in stark contrast with D2 where item damage was important but didn't decide an item's worth. Not only did casters make use of lower damage items, but item damage wasn't even decisive for melee characters.
An Azurewrath had significantly less DPS on it than, say, a breath of the dying berserker axe, yet a zeal/fanaticism paladin would actually clear more efficiently with an Azurewrath. This is because the 250-500 cold damage and 250-500 magic damage (stats which didn't affect skill damage in D2, unlike in D3) meant that this weapon would be highly effective even against enemies that were highly resistant to physical damage. But in D3, Azurewrath has low base DPS so it's garbage, every time (except maybe for Kormac). There are other ways low damage weapons can be highly effective as well, such as through crushing blow, which did damage independent of your character's stats.
9. Crafting is a complete failure.
As limited and underutilized as crafting was in D2, it actually played a bigger role in D2 than D3's crafting does in its own game. D3's crafting suffers from both fundamental design issues and fairly basic implementation issues.
First of all, the items are bad even compared to what you get from drops. My barbarian spent over 500k gold and tons of crafting mats trying to upgrade a level 55 helm with less than 100 vit, less than 30 all resists and a socket. No dice. Not a single upgrade. This doesn't even consider what you could get off the AH for 10k gold. So if nothing else, crafting simply needs a buff.
But more importantly, the fact that crafting is 100% randomized is a design flaw. Given the extreme inherent randomness of dropped loot, it seems odd to implement a form of crafting which just gives you more 100% randomness. Even in D2 crafting was thematic in the sense that you'd get a few guaranteed affixes and some random ones on top of it. This allowed you to target a specific item slot which is lacking, and craft something that you know will at least have some relevant affixes.
This can be summarized as follows: D3's crafting is just gambling from D2, yet even more limited. You pick an item type, pay a large amount of gold, and get something completely random. 99+% of the time you get something that you immediately vendor/salvage, but you might get lucky and get something genuinely useful. But in D2, you could get uniques/set items from gambling, and gold in that game held virtually no value outside of gambling/repairing. In D3 not only is gold a valuable currency but you get only rares. As hard as it is to believe, D3's crafting is actually an even more restricted version of D2's gambling.
10. Linear nature of item progression.
There are two differences between a fresh 60 and a 60 who is fully twinked out. The twinked out 60 does more damage and takes less damage. This ties into the lack of affixes/stats, but could in principle be addressed in a number of different ways, not necessarily related to items. In D2 getting new/better gear could fundamentally change the way your character operated. It could turn a barbarian into a werewolf, a necromancer into an undead caster with the fireball spell, or less dramatically, it could give you an aura, make you entirely immune to freeze, allow you to leech life off of enemies you normally couldn't, give you new spells, etc. This is almost completely missing in D3. A few affixes of uniques have dramatic effects, but very few.
11. Irrelevance of low level items.
With literally one exception (leoric's signet), items found in normal through hell tend to be useful only for leveling. This is in sharp contrast with Diablo 2 for several reasons: in D2 you needed low level runes for high level runewords, there were awesome charms even at low levels, some low level uniques had affixes that made them useful even in hell (crushing blow, immune to freeze, etc), and many endgame items were simply lower level items that could be found throughout nightmare. In D3 the linear scaling of affixes and heavy power scaling means inferno level loot will greatly outclass hell loot will greatly outlcass nightmare loot will greatly outclass normal loot. Together with the lack of potent affixes, this means low level loot simply can't compete with higher level loot.
The reason that this is a problem is that it greatly reduces motivation to reroll. In D2, one of the more entertaining things you can do is to just start over from scratch with some friends and plow through the game. Knowing in advance that you definitely won't find anything valuable until you're at endgame again is demotivating. This is also especially troublesome for hardcore mode, as it means that when you die and reroll, you're wasting time by leveling instead of farming endgame.