I answered this about flipping partly in this post
But yes, I will elaborate. People think that paying "real money" in a video game is a huge leap from paying in gold or from grinding for an item. What people don't realize is that currencies are only a numerical representation of value. As soon as there is a collective demand for goods, both virtual and "real," value is created. Humans developed currencies to represent this value in a tangible way, and to make the exchange of these goods more liquid.
When there is collective demand from real people for an item within a game market, the same value is created as anything else in the world, and you can put a number on it. That number can be different depending on the currency you are using to represent the value. You need a lot more Yen than Euros to represent the same value. The same goes for gold.
Gold is like a foreign currency. It represents value, but only within the specific game world. You can't use gold to buy things in stores in the US, just like you can't use Yen to buy things in those stores. If, however, you can convert that currency to a usable one, it has an "exchange rate." Gold has an exchange rate exactly like a foreign currency has. (Except gold is more easily exchanged than 90% of the currencies in the world) This is why botting should not only be against the rules, it should be illegal is terrible for a game economy. (Korea kinda gets it)
So items are just exchanged at the value that demand sets. Regardless of whether it is in gold or real money. Or even in bartering. People demand, the market supplies.
It will get long, but bear with me.
The concept of "pay to win."
You always pay to win. I just explained how gold and USD are very much the same within a game economy, but there is something even less tangible that is also the same: time. Time is the most valuable currency there is. There is an exchange rate for time to money, but there is no exchange rate back.
Gamers who play within economies create the value of the currency (gold) when they take time to accumulate that currency, and the rarity of an item contributes to the item's value equal to the amount of time a person would have to play to statistically obtain it. This is very similar to any currency and wage labor. (I would love to hear Marx's thoughts on Diablo gold) This is time being converted into a currency. (THIS IS REALLY WHY BOTTING SHOULD BE ILLEGAL IS TERRIBLE FOR A GAME ECONOMY Through dilution, bots destroy real value that gamers create by playing.)
You always pay to win because you either pay in time or in a currency. Some people are rich in time, and some people are rich in currency. And anyone who spends more time will also have the skills to back it up. Plus, why not let people with a lot of money give your game time real-world value?
The only problem with Diablo in this regard IMO is that gear is possibly too much of a factor in terms of your heroes ability. Not that it shouldn't be significant, but it should be balanced with skill. This is a difficult balance for a dev team.
With this balance, paying money for the gear is the equivalent of purchasing nice golf clubs, or high tech running/climbing/basketball shoes. It's purchasing gear that gives you an edge on the competition in the game that you play. A thousand dollars for a good set of golf clubs gives you the ability to play the game of golf better than someone of equal skill playing with a $10 garage sale set. It doesn't automatically make you good, but it helps you get there. And if you love that game, then by all means play your best.
Thanks for letting me elaborate. lol
--Edited because everyone seems to be fixated on the merit of botting legality. I have my opinion, but that was not the focus of this post. I really wanted to address the concept of "real" vs "fake" currencies and the idea of "pay to win." And the legality of botting doesn't change the point that botting is toxic for the economy of a game, and preventing it should be near the top of a dev team's priorities if they want a healthy market. The more botting there is, the less purchasing power an average player has.