What? Really? Without access to the different colored cloth blocks, we're stuck with grey, a slightly different grey, and brown. Duping some diamond blocks to get anything other than grey seems pretty OK with me. It's not like gold and diamond are used for anything besides tools, and since you can just toss a worn out tool and then pick it up again to restore it to full, it's not like it's game-breaking. Maybe if diamond had some really important use or did something really cool. But since we don't even have any monsters and damage is turned off, it's not like having diamond armor means anything.
Hell, when Fireslash was running the last server, he handed lots of stuff out like it was Halloween candy. I must have been given two trunk-fulls of cloth cubes, and nobody said anything about it.