I must admit I've steered clear of the threads discussing your second pup because I am another in the camp of later is safer... however I always am (and would have been in your case) delighted to be proven wrong, and am so sorry that it hasn't worked out for you.
(And to add, when I first joined the forum I was seriously considering 2 pups at once and it was only my OH who put his foot down to say we couldn't which stopped me - so I can completely understand the desire to add to your doggie family)
Making that decision to rehome a pup is heartbreaking, and I know you must be in peices, but you have managed to do what many other people here have done before you, which is put the needs of the two dogs you care deeply for before your own hurt emotions. I can only applaud you for that.
And, while I am in the later is safer camp, there really are never any guarantee when it comes to dogs... you may have found the same situation had you waited and introduced a pup once Diesel was older. We attempted to foster a dog a couple of years ago, and it was an absolute disaster - as you experienced the behaviour of both dogs was deteriorating, and we couldn't enjoy time with either one... while I felt terrible at the time for letting down a dog I was supposed to be helping, the situation really wasn't doing anyone any favours at all.
It will take time to heal from the hurt of your experience, but you know Riley is in a fantastic home - and you have the bonus of being able to see him grow up once the wounds are less raw. Hopefully Diesel and Riley will become great friends now they don't have to compete in the same living space.