Hmmm. Will have to look at this Diamond chap (perhaps not at work tho) and see what he actually says, though at the very least watching child porn is gaining gratification and a direct benifit from the suffering of innocents, and can be condemed on that basis.
On the other hand, I have participated in countless numbers of on-line and simulated murders and other crimes, while imagining myself actually committing those acts. In fact I have pretended in paintball games and military exercises to stalk and kill other real human beings, and felt the thrill that gives (imperfect reality though it is). I have certainly watched many many very realistic simulations (movies) of murder and death, and thrilled and laughed at many of them. Even with all that I don't believe it has induced me in any way to 'take the next step' and actually kill.
That said, I didn't have a potential victim avaliable to me in my own home, in circumstances where I might reasonably expect (or at least delude myself into thinking) that I would get away with murder. There are also a lot of options open to a pedophile who lives with or has access to a child, like voyerisim, which might act as a half-way house to other things.
On balance, given the enourmous potential harm to vulnerable innocents, in balancing the compeating rights of the two groups (pedophiles are, I assume, born/made like that - like us all they are always responsible for their personal actions but are not to blame for their sexual preference) I come down fairly firmly on the side of prohibition. However, if there is anything in what this Daimond chap says, and it appears that there is a better, albeit counter-intuitive way to keep children safe, I would certainly reconsider my views.