Tried reinstall -- didn't help; apparently it does not clear the cache on uninstall. :(

The only work-around I've been able to find is to re-install firefox completely, erasing all private cache and data. I assume this worked because it forced Diigo Toolbar to wipe away the entire cache and re-load it again. Probably, storage format has changed in recent versions which half-invalidated all my bookmarks saved before the update day.