I would think its not that Digg is the pinnacle that these sites can be, but that social news sites are not usually defined by their features-even if a new social news site makes tons of improvements over the digg/reddit model, it simply won't have the user base that digg does. No one wants to use a social news site that no one else uses. Whereas with search, it doesn't really matter that no one else uses it because search isn't about other people.
If you could solve the problems of 1) users reposting the popular links from other social sites (without attribution), 2) spam bots, or 3) a ruling clique from taking over the front page, then you could compete with Digg and probably beat them.