Of all the diablo clone attempts I've played, Titan Quest was the most faithful to the formula, I think, and it worked well. But loot balancing is a big weakness in hack-n-slashes, and I don't think anyone's found the perfect incarnation of it, though D2 is arguably the most diverse.
I don't think TQ 'failed' because it was a bad diablo clone--it was an excellent one, and had some good innovations as well (the caravan, for instance.) I think it failed to meet its sales quotas because, as woges said, action rpgs are just not the mainstream product they once were. The market is split between MMO's, console, FPS/action games and casual games these days, and the rpg niche, including the so-called 'action rpgs' seems to get smaller, more specialized and restricted all the time.