Geodatabase Diagrammer works for me with Visio 2010 and ArcGIS 9.3.1. I entered the path for the folder containing the template and stencil files (.vst and .vss) to the File Locations dialog in Visio (File / Options / Advanced / File Locations ...), as indicated in the readme file.
I had to open the template and stencil files from within Visio and save them again, selecting the "Current Visio Format" option (i.e., Visio 2010 format). Geodatabase Diagrammer seems to have difficulty when Visio opens the files in an older format.
When running Geodatabase Diagrammer, you need to add .vsd to the end of the output file name.
Ian