Have you been able to get this RSS feed to work with other versions of clearspace? Can the rss widget access other rss feeds? Have you been able to access this rss feed via any other rss tools?
This sounds like it may be related to the rss feed itself, rather than the widget. I seem to be having trouble with the digg rss as well, but other rss feeds work fine.
Let me know what you find out
I'm guessing you're adding the Digg widget via the HTMLTextWidget. If that's the case, the server doesn't actually access Digg, your browser does. But when you use the RSS widget, the server is actually the one making the request. I'd bet that your server doesn't have outbound HTTP access. Can you run a check on your server (wget on Unix or IE on Windows) to make sure the server can request Digg?