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There's an IAMA from an Ex Digg employee and from what I've read of his opinions on Reddit during their V4 deployment and all, is that they barely thought or even glanced at Reddit. They considered it a very badly designed website that couldn't compete. Their mistake was not looking at Reddit and realizing why it was growing in the first place.
While the community at Reddit has basically reached that apex where the average IQ starts to drop, the design of the website is very simple and easy to get used to. I'm very glad that hubski is just as simple and sleek. Also Hi Mk :)
I suppose that is believable. When you have the money and the traffic, there probably isn't much motivation to examine your smaller competitor. Perhaps they were always looking up towards larger services. Obviously, that was a mistake. Digg served a purpose, the closest service that served a similar purpose would have been Reddit. Not Facebook or Twitter.
Personally, I always favored the Reddit aesthetic to Digg. It might not be pretty, but it puts the content front and center. And that's why people are there. Also, hi Hellsadvocate!