Shaun, you're right, the death cats don't have right of way over sail. Its only the Manly ferries and Sydney Harbour Ferries on the regular runs on the harbour.
BTW Sydney Harbour ends at Long Nose Point Balmain.
Can anyone tell me what the latest rules are regarding sailng under the Harbour Bridge. Is it a no stopping zone, less than 15kts and keep to the northern half of the channel?
Adam was sailing in a NSW states regatta for Flying Elevens at Hunters Hill a couple of years ago. The skippers of the river cats were extremely courteous and slowed to a crawl when going in and out of the fleet. I wish some of the cruisers would have done that. Mind you there were 106 boats racing around Long Nose Pt, Lane cove river and Codock.
This link is to a document that was written in response to the investigation into a collision between the Ferry "Dawn Fraser" and a dinghy in Walsh Bay. It gives some history of the orange and red diamonds. I also think you are right, that the red diamond only applied in daytime and to sailing vessels and ferries. The response also throws up the effect that the diamond has on all the other rules, overtaking, restricted navigation, harbour bridge transit zone etc. It says it creates a movable area around the ferry where rules change. I think it helps if you've got a law degree.
http://www.maritime.nsw.gov.au/docs/wh/Dawn_Fraser.pdf