[QUOTE]Carbon in diamond form has a melting point of 3550 C (6422 F) and a boiling point of 4827 C (8720.6 F). Its freezing point is the same as its melting point -- higher than this and it is a liquid, lower than this and it is a solid. Diamonds at room temperature are 'frozen'.[/QUOTE]

In other words, it's impossible to melt diamonds with medieval technology. Hell, it's hard (if not close to impossible) even with MODERN technology to melt them.

Also, obsidian is glass. I personally wouldn't want to alloy ANYTHING with such a substance, as it would make it more brittle.