dired-diff existant.gz /dir-with-no-such-target-file

[jidanni]

In dired put the cursor upon cat.1.gz, and do = /tmp, i.e.,
(dired-diff "/tmp" nil)
which gives
  diff -c -L /tmp -L /usr/share/man/man1/cat.1.gz /tmp /tmp/jka-com6714mTn
  Diff finished (no differences).  Wed Apr  9 02:55:47 2008
which would have been fine, if indeed there was a file named
/tmp/cat.1.gz, and its contents were the same, but there was no such
file. emacs-version "22.1.1".

P.S., you are using some secret undocumented private or erroneous diff
"-L" option. I can find a --L... but no -L.