I'm late to the AH discussion so I'll try to keep it short. Blizzard needed a way to monetize Diablo 3 so that it could generate revenue beyond the initial purchase. I understand and accept this, but I feel they went beyond simply monetizing item selling to actively designing the game to strongly encourage players to buy items.
Blue posts have confirmed they designed the loot system with the Auction House in mind, but have not gotten specific. Inferno seems to be explicitly designed around the idea of buying gear. The difficulty rises so exponentially that the only way to progress is to upgrade all your gear by huge amounts in one go. So you either buy the gear on the Auction House or you "farm" hell. The problem is Hell is rather trivial by this point, so it's unbelievably boring to play compared to Inferno, which is unbelievably frustrating.
This helps reinforce the player's desire to not only get out of Hell difficulty, but to make Inferno doable. This is also reinforced by drop rates which feel so gimped that 'natural' progression is very unappealing (even in Inferno). It's as if the internal ilvl on the drops is always 2 tiers below usable, so it's not that just that you don't get a good roll of affixes, but that the amount of stats on them is way too low. The regularity of drops with the appropriate ilvl seems too low.
I'm not saying you should be able to farm items so easily that the AH is pointless. But Blizzard made the time investment needed to get gear naturally feel so enormous that no reasonable person would choose to do so when the AH exists. The player needs to feel that they're paying to save time they might otherwise spend farming, not that they have to pay because the alternative is insane. That psychological difference really does change the way players interact with the game even if the actual time investment would be comparable to D2.