According to a speedrunner i've spoken with the quality level of the items should improve in nightmare and hell. Higher items like platemail, long war bows, great swords etc drop from monsters but if it is a magical blue item then the prefix and suffix qualities are constantly crap like +2 strength +2 hit%. Were prefixes supposed to be garbage on identification on the higher difficulties in early dungeons or could this be a similar problem like Battlenet not allowing players to enter Nightmare/Hell?

qlvl (quality lvl) is based on mlvl (monster lvl). On higher difficulties, you can get things like full plate mails in the church, but the affixes are still crap, because the mlvl there is too low to drop anything good.

When hunting for the best gear, difficulty makes absolutely no difference. In fact normal is better, since you clear faster.

Your speedrunner was mistaken or misspoke. Unmodified mlvl affects qlvl (enchantment). Modified mlvl (boosted by difficulty) affects ilvl (base type). Hence, Hell/Church gives Full Plate Mail but the enchantments are still low value.