This is a good explanation from the Novak Website:

Similarly, the motor in a car is like a big inductor. During the off-time at partial throttle, the motor will not allow the current to just stop. Instead, the voltage across the motor will reverse, and current will flow through the Schottky diode. If no diode is present, the current will flow through a parasitic diode built into the brake transistors. The current flows through the Schottky diode before it will flow through the brake transistor because the forward voltage drop of a Schottky diode is less than the brake transistor diode (this is why Schottky diodes are used and not other types of power diodes).

For the highest efficiency, during the off-time while the motor continues to flow current, the voltage should ideally be as close to zero as possible. One reason Novak uses an external Schottky diode is because the closer the diode is to the motor, the lower the voltage drop during this period. This is due to the voltage drop through the wires back to the speed control. This will also reduce some radio noise due to the current spike not having to travel a long distance.

This will not help the heat problem with the batteries as that is a result of the power being sucked out of them, but MAY help with heat from the ESC.
Also, if I'm not mistaken you are using an Astroflight.
When I e-mailed the company (the designer/owner replied) I was told that no diode was necessary on their controllers.
Another reason for reverse protection diodes on boats is the tendancy for the prop to spin after thottle has been released.
And as you may know, a motor without a battery attached will produce electricity when turned, which travels back up to the ESC, possibly causing harm.