Since you think Jeter should have diamond defense... Let's compare him with Jimmy Rollins who has above average but not amazing fielding and has had diamond fielding in MLB The Show on his 99 overall Signature Series card. You're argument is that his range is the reason people say he is a bad defender. I am not saying he is a "bad" defender but more so an average/run of the mill defender. You are right that his range is awful as indicated by his -89.3 RngR (Range runs above average) and 414 OOZ(Plays made Out of Zone), compared to Rollins at -9.7 RngR and 717 OOZ. When you look at the complete picture though, he is mediocre in almost every aspect. His UZR (Ultimate Zone Rating in runs above average) is -66.1, compared to Rollins at 48.4. Also, his overall FV (Fielding Value) at -137.1, Rollins at 37.4, and his DV (Defensive Value) at -19.8, Rollins at 137.
We also see a similar story when looking at his FSR (Fangraphs definition if you're not familiar, The Fan Scouting Report is a yearly project conducted by Tom Tango that rates players on their defensive ability based on fan observations and voting), where he is significantly worse in every single category.
So the fact that he has terrible range is not the only reason he is looked at as an average/run of the mill defender.