In a word, yes. The selling point of the DO lens is that it's smaller than the 70-300IS and so may be a more convenient travel lens. The DO is about 4" long when at its shortest, while the IS is around 5.5". Both have IS of course. The DO lens is also actually heavier then the IS lens, despite it being shorter.

The Canon EF 70-300/4-5.6 IS USM  is around $450 and the Canon EF 70-300/4.5-5.6 DO IS USM is around $1250, so there's no real competition here. The cheaper IS lens wins. If you want better optics then the new Canon EF 70-300/4-5.6L IS USM  can be had for around $1350. Other than size I can't think of any reason to pick the DO lens over the L lens.

A third option is the excellent Tamron AF 70-300mm f/4.0-5.6 SP Di VC (see http://www.bobatkins.com/photography/reviews/tamron_70-300_vc_review.html)

I don't think it's a technical failure. There are quite a few people out there who have them and love them. It is a very small lens for the focal range. User reviews on Amazon give it 4.5 out of 5 stars with a lot of people giving it 5 out of 5 stars. The 400/4 DO also has a very loyal fan following and it's the smallest, lightest 400/4 lens out there (well, it's the only 400/4 lens out there, but if there was a refractive optics version it would be larger and heavier!). Diffractive optics also do an excellent job of minimizing chromatic aberration.

However I think that diffractive optics aren't something that's going to be "the next big thing". Nobody but Canon has tried to use them and Canon just have the two lenses, the 70-300DO and the 400/4 DO. Diffractive optics do enable a smaller, lighter lens to be made for any given focal length/aperture and it was an interesting technology exercise but it seems to me that the tradeoffs (cost and some optical quirks under some lighting conditions) don't really outweigh the benefits (smaller size) for most people. The 400/4 DO IS USM is $6145, which is a lot of money.

I doubt that Canon will be in a rush to bring out any additional DO lenses though. I don't think they've been a huge success from a marketing standpoint.

1989 was a long time ago. 23 years in fact! At that time the EOS system had only been out for less than two years, so maybe there were early problems reverse engineering the rather complex electronics that the lenses need. Canon don't provide any details of their lens to camera communications protocols to 3rd party lens makers, so it's up to them to figure it all out. Sigma had all sorts of problems in the early days which resulted in a lot of their early lenses not working at all when mounted on newer Canon bodies.

I've tested a bunch of Tamron lenses in the last 5-10 years and I've had no problems with them. In fact I own the Tamron 70-300 VC myself. If I was worried by their QC or reliability I wouldn't have bought one. Plus Tamron lenses come with a full 6 year warranty (Canon only give you a 1 year warranty), which suggests they are pretty confidant about reliability, since warranty repairs are obviously an expense for them.

I can appreciate your concern and, of course, every lens maker (including Canon, Nikon, Sony, Pentax etc.) send out a few lenses with problems, but my experience with Tamron lenses over the last few years has been quite positive. You do see complaints of course, but you see complaints about pretty much any lens. If you have 100 good ones and 1 bad one, it's the person who got the bad one who is most likely to post about it!

My advice when buying ANY lens, from a cheap 3rd party "no name" consumer zoom to Canon "L" series glass is to buy it from a reputable dealer and to test it as soon as you get it. Any reputable vendor, including Amazon, Adorama and B&H will exchange the lens within 14 days if you find it has a problem.