Dude, the first D2 comercial version released was 1.03... wasn't it? My original D2 CDs have ver .03 on them...
Anyways there is no possible way that could happen, Emo is just screwing with you. First of all to get a bugged item into BNet at all would be a formidible task, especially through warden. Now theoretically you could create an item that would make the game crash, however when you pick up said item, or hover your mouse over it, YOUR game would crash. Then there's the fact that you can't "bug" an item to make you drop all of your other items. There is actually no possible way AT ALL for that to happen. The only possible explanation is a downloaded trojan or drophack, and the item was either made up by the kid, or was a cover by the scammer so he wouldn't be reported for using a drophack/trojan. I suppose maybe you could have the person load a program to excecute when the packets are received from picking up a specific item, but that would still require a download or trojan.