I really miss this feature. I've just installed the Read It later plugin for Firefox. I'd rather use diigo for everything but seeing as you've taken away a useful feature AND you never bothered to tell us about the change, maybe it's for the best.
I noticed that this feature is still missing. Are you planning on bringing it back? For my part, my use of Diigo has really dropped since this feature was removed.
I don't know about the IE toolbar, but the feature was pulled (as acknowledged here by Joel) from the Firefox toolbar some time back. They were going to review it and presumably put it back, but the latest update still lacks the feature.