Master Diplomat badge is given after you have completed everything on Colossus Blvd. I think I completed the storyline quest before the side ones. And it was after I had finished the last side quest for Kazul/Kirby.
You get that badge by completing the Collosus Boulevard quests (even though the people above me already answered :P). Anyway, it probably refers to your character making peace between the Gobbler King and Wizard City.