The Diag partition is the second partition following the Recovery one. It has a 10Mb size, cramfs file system, on linux its reference is /dev/sdb2 and I think it must be the mmcblk2p2.img partition.
I had problems with the dictionary and sleep before I upgraded to the latest firmware.
I do not have an sd card in my Reader. I only put one to flash restore sets or backup/restore partitions.
I usually charge my Reader through my computer. I plug it to my computer practically every day. But the problem is not related to this. I've been turning it off and on again, then using it normally. When I put on sleep, the problems start, whether or not I had connected to the PC.
Yes, I think it is probably a hardware fault. Do you think it is worth sending to Sony for repairs or will it cost too much?