I think it's really cool in principle but doesn't always work out, and is certainly better suited to certain types of games. It's the very realistic concept of 'as you practice something you get better at it'. And that's easily understood through mechanics with very little information given to the player. You swing your sword, and hey, you skilled up in your knowledge of using a sword! You don't wonder where that came from, you know that as you play your character you'll become better at the things you like to do. That's awesome.
What ends up happening though, I find, is through the infinite goal of the player to make their character as powerful as possible as quickly as possible, it turns from a concept of reality into this twisted game of getting near a rat, putting a stapler on the crouch key, and going to work while your stealth skill auto-levels. Obviously that's an extreme case but it sort of points out a flaw in the system. You can and will do things that are very unnatural to gain skill levels that do not keep in the fundamental theme of roleplaying in which the system solely exists for.
It's a cool system, it just doesn't always translate from pen & paper to video games very well. And a multiplayer action-RPG like Diablo? It just doesn't fit thematically.
That's just my personal take on it though.