It won't happen until next March but Blizzard has announced they're going to be completely removing the auction house from Diablo III. They let me know via email, and by telling every single blog I follow that they should post about it. Well, I guess I'm following suit since I have my own take on the matter and getting it out there is what this place is for, isn't it?
I played a lot of Diablo III when it first came out, and have gone back periodically for more. I feel like the game launched in a very unfinished state, and even now is still missing features I consider core to an online game in this day and age like guilds and chat channels. They also failed badly in their first attempt to balance the end game difficulty and loot drops which really detracted from the fun of the game for someone who plays games as intensely as I do. The way items dropped combined with the tuning failure of monsters meant the only way to make meaningful progress was to grind up money and use the AH to get upgrades. Actually killing monsters for upgrades was not feasible since I couldn't realistically kill monsters that had anything resembling a decent chance of dropping an upgrade.
Different people came up with different solutions to this problem. Sky leveled up a character better at farming and used that character to gear up his main character. James decided the best way to get more powerful was to stop playing entirely and just wait for the prices of gear to deflate on the AH as more and more people became capable of fighting in the higher acts of inferno. I decided the best way was to become an auction house guru and make money flipping gear and finding great bargains from people who knew less about the economy. I then decided I had no interest in playing a badly designed economy simulator and stopped playing the game.
Eventually they smoothed out the difficulty at the top such that you didn't desperately need gear you couldn't obtain in order to play the game. (This was 'solved' at the start by Blizzard allowing the first wave of 60s to farm easy to reach treasure chests that they removed from the game after a few days which let the economy get bootstrapped.) I came back, and by that point James' plan worked for me and I was able to spend what little money I had on more than enough gear to get by even if the difficulty hadn't been smoothed out.
Was the AH itself to blame for the problems Diablo III had at launch? Yeah, I think it probably was. Either Blizzard put out an incredibly unpolished product or it put out what they thought was a pretty good game centered around the auction house without realizing that doing so was fundamentally changing the game and wasn't what the consumers wanted. Having a way to get gear outside the game allowed them to believe they could ramp up the difficulty because people could just buy their way out of the problems. But most people who play Diablo games don't want to throw money at the problem. They want to throw swords and spells at the problem, watch the enemies explode in a shower of experience and loot, and repeat the process.
I have been playing Diablo III every now and then, and I think they've gotten a lot closer to that game. I have fun logging in, killing monsters, and looking at what drops. But I realized that the last couple times I played the game I didn't even look at the auction house. When I'm really playing the game intensely I feel the need to use the auction house to get any edge I can find, but when I'm just logging in and blowing zombies up for a few hours I really don't need extra stats. So removing the auction house won't impact the way I'm currently playing the game at all. Even better, they're working on changing the way loot drops work to make things more interesting for people who go it alone, so that has to be good for the way I'm playing now. And good for an intense way of playing too, since then the way to get better actually will be just killing more dudes and looking at the shiny things that drop.
Blizzard certainly seems to be learning from their mistakes, and owning up to them, and I have to commend them for that. I just wish they were smart enough to not make such brutal mistakes with one of their flagship franchises in the first place!