Hi Pete,
Yes, the diode is associated with the Fail Safe feature. As I recall (and again it's been a few years now), my servo traveled to an extreme end (or nearly so) with the transmitter on, but returned to the neutral position with the Tx turned off. It was as though the Fail Safe still worked but the neutral position (with signal) shifted dramatically. I also refurbished a Digimite 4 channel back around the same time so there's a chance I may be telling you about a 4 channel servo, but I'm 90% or better certain the problem was with an 8 chan servo.
The circuit you have came from a 1969 publication (first printing was 1968) called Radio Control Manual by Edward L. Safford, Jr. I added the "Bonner Digimite 8 servo" label as the publication has it incorrectly shown as "Digimite receiver and decoder" in Figure 1203. Not Mr. Safford's error - was the publisher's. The other Digimite 8 schematics on the website also came from this source.
Tom