It is true !!! gow did you find out ??
i started a new game wounder what it does.
[EDIT] : OMG ! It´s so hard!. Everything is broken, endless enemies and they are stronger aswell, haven´t come far yet but I guess it could have some surprises.
Sorry, I don't check in here much at all anymore so I missed these replies. I found it via hacking/reversing the game after beating it for fun to mess with things.
Crazy! It's been what, 19 years? And it's the first time I see the secret difficulty mentioned anywhere. I've enjoyed beating the game on Lar's bone thanks to your discovery, the double number of mobs is crazy but i've noticed that a character has a very good chance(30 to 50%?) to get 2 skillpoints every level up(I've totally abused save/load to get that on every level once i've noticed it), or 3 skillpoints on every 5/0 level, that in addition to having more mobs to level off, makes you very strong. Normal mobs, even rats get pretty wild amount of healthpoints as you level up higher, but I was a mace wielding warrior with insane strength which made quick work of everything. End bosses on lar's bone were dissapointingly weak though(same strength as normal hard mode?) slightly weaker than elite death knights in the final zone(which I made an army of, as my mace wielding warrior, despite dealing 400+ dmg per hit while having over 1500 hp and dodging most of the hits, just wasn't strong enough to deal with end-game mobs without spamming potions).
Haha, glad to hear it does work and does stuff rather than just being a broken mode.