Thanks for the bug report.

I applied the attached three patches; the first is to gnulib and changes 
gnulib's diffseq module to handle that case better, the second is to 
diffutils and brings diffutils up to the latest gnulib, and the third is 
also to diffutils and makes diffutils compatible with the new gnulib in 
order to use the fix.  I'll CC: this to bug-gnulib.  The fix works for 
me so I'm marking this bug as fixed, but if it still doesn't work for 
you I can reopen it.