I think the background needs to be dark especially inside catacombs, cathedrals, and in hell. Outdoors I think colors are fine the way blizzard have them in D3 so far.
But your character and monsters should stand out and remain colorful. That's especially the case for your character, less so for monsters- if monsters have a similar gradient of colors it helps us differentiate players from monsters (it will depend on the type of monster).
If you look at Chaos Sanctuary the background was very dark and only had like one shade of dark gray. But there is still plenty of color and they really do look nice.
Here's a video of chaos sanctuary:
http://video.google.com/videoplay?do...43278133099279
The colors serve as identifiers for the player to better recognize what is happening on the playing field. the brighter and more varied the colors are the easier it is for us to see whether or not our enemy is frozen, struck and poisoned... and whether we are on fire, poisoned, cursed etc...
The colors help guide the eye as to what is happening on the playing field. If everything one washed out we'd have difficulty understanding what's happening.
What I find interesting is how cool bright colors look on a dark backdrop, and how it really gives a scary, gore-like atmosphere.
I also think the player's light radius should play a equivalent role in diablo 3. It's really scary when you can't see much pass your light radius. I also think the devs should work more with lighting. I don't mind colors but they need to be near light sources. Areas that aren't illuminated should remain dark/less colorful.
Overall colors should have a huge presence in spells.