Good news and bad news. Good news, authentication without restricting D3 executable using the setarch command does not hang on "retrieving character list". You can create, join a game with no problem.
Bad news:
- massive performance hit. Setting affinity to one core on quad core machine slams your fps intro the ground (1 digit numbers)
- shutting down the game cannot be done gracefully, although, exiting a game can be done with no problems
Mitigation:
Continue launching the game with the "setarch" workaround described in the forum and the tips & tricks sections.