Wasn't meeting quality expectations
It's taken a while for Blizzard to come out and say it, but here we go: Diablo III's Team Deatmatch will not be happening as originally intended. According to game director Jay Wilson, "... most of our testers didn't feel like it was something they'd want to do beyond a few hours. Without more varied objectives, or very lucrative rewards, few saw our current iteration as something they'd want spend a lot of time in."
As such, the company "will be shelving it for now and exploring other options." Wilson explains that the team is "going back to the drawing board on a new replacement" for the mode, which will be free when released. Continuing, he says: "... we're going to first be looking at new modes that play up to the strengths of the character classes, focus on objectives beyond just defeating other players, and possibly even integrate PvE elements and rewards."
While that specific PvP mode is out, Diablo III players can expect to get dueling with the arrival of patch 1.0.7, due out next year. Blizzard will have specifics about the new feature soon.