The differences between Reddit's and Digg's origins are visible even today. When a story gets enough votes on Digg it becomes the new top story, as on Slashdot. Whereas on Reddit stories bubble up from the bottom then sink back down again. This is a significant difference because it makes Reddit harder to game.
Originally the Reddits thought they'd have to motivate people to upvote stories by using the votes to train a filter. But it turned out users were willing to vote out of a form of altruism, so the idea of training a filter died out after a couple months.
As for the names, what they originally wanted to call Reddit was Snoo, as in "what's new?" But the name was owned by a squatter who wouldn't sell, so as a temporary expedient Alexis chose Reddit, which Steve and I both hated initially. (They had to settle for calling the Reddit alien Snoo.)
The Reddits learned of the existence of Digg a week or two after launching. They were pretty bummed. We still use their story as one of the canonical examples to encourage new YC funded startups to launch quickly.
If Michael wasn't sure whether Reddit copied Digg, he could have just asked me. But saturdays are slow days for traffic, especially on Memorial Day weekend. Arguably he genuinely thinks he's giving Alexis a gift of pageviews, which to an online publication must seem valuable almost regardless of context.