Wirelessly posted (HTC Diamond: Mozilla/4.0 (compatible; MSIE 6.0; Windows CE; IEMobile 7.11) Sprint MP6950SP)
Yeah, it definitely sounds like the digitizer. It could be that there is a bad connection where the digitizer plugs into the main board so check that.
I found the service manual for the diamond but looks like it was posted in that thread you linked to. Other than ebay or just doing a google search for the parts I don't have any suggestions where to get the parts.
If you have to replace the digitizer you might consider buying the digitizer and lcd in an assembly to make installation easier. That way you don't have to worry about getting any dust or scratches in between the digitizer and lcd.
Good Luck!