I'm not so good in reading mathmatic in my head, I made an error when first reading it. I had to run it through the compiler to read it properly.

I would assume that, since the color values are multiplied, it does not matter if you do Diffusecolor or colordiffuse, both should give the same result if I'm not mistaken. 

In the shader you posted, the diffuse node drives a color ramp, so the color of the light is changed in different ways when the light gets stronger. If I remember correctly, BB did something like this in his early skin shaders to let the shader react differently on different levels of light, before we had GC. With clear colors it's easy to see what the shader does, here is the ground plane with an render as an image with that shader.

If you would connect the diffuse node directly to the color_multiply, it would give the same effect as plugging the image directly in the diffuse channel. At least that's what I would expect.

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