Nether Bug.

This sounds like how it's supposed to work. Diamond armor will protect you longer, especially if it has the fire protection enchantment, but no armor will protect you forever from lava. Why were you expecting it to be different? Did you think diamond armor made you invulnerable?

This is Working as Intended, when you fell in the lava you took damage and eventually died. Armor is only can reduce damage in most cases, not prevent it. When you died, your inventory (including your armor) dropped as it was supposed to and was destroyed by the lava.