Few criticisms here:
1. The armor isn't a solid gemstone. This is the biggest mistake made. You compare the suit of armor to the largest or most famous stones but these were all single gemstones. It is made of many other pieces of diamond. A large gemstone gets geometrically more expensive whereas very small diamonds can often be significantly cheaper. There's also huge jumps in demands at certain "milestone" sizes. A .99 carat diamond can be significantly less expensive than a 1 carat diamond. For all we know, the armor is made of millions of grain-sized diamonds which would be a few hundred bucks. They aren't magically combining smaller diamonds into one solid gem that is wearable. If they are then we have something impossible happening so the cost to produce that would be money+magic and the ability to magic diamonds around like that would also tank the market.
Heck, maybe Steve even breaks the diamonds up to make the armor? That would seriously change your armor capability point (though it certainly won't be as good as steel, iron, and even potentially wood armor).
2. Not all diamonds are "gemstone" quality. Think about diamond blades in construction for example. There are gem quality stones and then there's severely flawed diamonds that aren't ever going to be gemstone quality.
3. Inclusions, flaws? The truth is, you have no way to guess what kind of inclusions or materials could be inside the diamonds. All we know is that the clarity is near null. But that significantly includes the plausibility that there's other stuff inside the diamond and that will drastically reduce your value. Or, maybe the Minecraft world has diamonds with significant inclusions of titanium or something else that's nuts but could potentially make it more workable as a material and more functional as armor. It would also make less of the "weight" be related to diamond carat.
4. There's something wrong with the way you calculated the armor or with the way it is presented. Are you calculating them as solid or just doing surface area because I'd be hard pressed to get that much weight out of any kind of stone covering my body. We also know that diamond is around 3.5 grams per cubic centimeter and that's 218.5 pounds per ft^3. Now, at your 1160 lbs claim that would be around 5.3 cubic feet. How is this possible when made into a potentially thin layer of armor? We either must accept that a bad assumption was made somewhere or the minecraft scale is entirely out of sync with our own world's scale. I'd find either plausible.