How about a picture of the markings? I doubt they are factory.
Everything I have read about the Diamondback says it is .38 Special (and .22). The Diamondback is built on the light D frame, the same as used for the Detective Special, and Colt did not (AFAIK) build any .357's on that frame.
I suspect that someone reamed out the chambers to take the longer .357 cartridge and marked the gun accordingly. I have little doubt that it would stand up to .357 pressures but it would probably shoot loose pretty quickly. I strongly agree with your decision to stick to .38 Special.