This upset quite a few website owners, to the point where the Diggbar received plenty negative press. The primary reason behind this was that website owners saw the frame hosting as traffic theft, depriving them of legitimate user traffic, and when viewership is king this could definitely turn into a sore spot.
That's not say Digg was being intentionally malicious. After receiving enough flak, it seems the developers behind Digg have relented and made some changes to the software. In the future, Digg's toolbar will no longer deprive a site of any foot traffic; or at least won't deprive the address bar of the proper URL. It’s a small change, but it's good to see them respond so quickly to complaints – whether or not it will be enough to appease content publishers who felt wronged remains to be seen.