No they absolutely didn't. All the team needed to do is put a fresh coat of paint on Digg, similar to it was in the beginning, and capitalize on the traffic before they wanted to make drastic changes.
Digg's whole problem started with when they tried to become the Twitter of news. That's not original intent of the site. If you purchased all that data, all that SEO linking, you'd have to be absolutely crazy not to migrate over at least the stories into your new design.
These guys completely dropped the ball.