Diffusion currently detects a valid shallow clone (a clone with --depth) by examining stderr for the text:
The remote end hung up unexpectedly
In recent versions of Git (?), the emitted message appears to have changed slightly, and is now:
fatal: the remote end hung up unexpectedly
...which is no longer identified as the desired message (the pattern "The ..." does not match the text "the ..."), so Diffusion believes the request is invalid and emits an error (HTTP 500).
The specific change which affected behavior is almost certainly this one (July 2018):
...which changed "The" to "the" in preparation for localization.