Diablo Legend
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From Diablo Wiki
The Diablo Legend refers to the in-world belief that the events taking place 20 years ago (in Diablo I and Diablo II) didn't really happen, or it only happened to a fraction of the magnitude that was claimed.
Background
Since most people who were involved were killed, and the few who were not went mad, not many eye witnesses of any credibility are left alive to tell the tales. Scholars and regular people all believe SOMETHING happened, but it could just as well have been weird mould growing in the wells of the few specific places that were affected, or some other "natural" reason.
People feel that if the Prime Evils were on Sanctuary, people would have noticed it!