Blue Plastic Tracks

Does anyone know what made this hard to find and very special Diesel 10 so rare and valuable?

All of the Talk n Action are pretty rare, but the ones exclusive to Japan are still pretty hard to track down.  They are usually pretty expensive and the Talk n Action trains are very finicky and prone to issues.

For this TNA loco finding one that doesn't have a broken pinchy is hard to find also.

Yes Japanese language T'nA versions were only distributed and sold in Japan, and nearly 20 years ago, so they are rare commodities to western collectors.

Is the Diesel 10 the rarest of the TnA line?

It's hard to say which is rarest anymore, as the floodgates seem to have been opened up for them on eBay. Diesel 10 is definitely the most intricate with his articulated Pinchy claw, but it is their boxes that defines thier rarity now...
Toby Henry, Thomas, and Gordon w/ boxes are the hardest to find, while D-10, James and Percy seem to be the most common.

Toby had been the rarest for me in trying to find. I found 1, bid and won, then the seller said it was not available anymore. :-(. (The box, that is.). Train only I think the American Accent James is probably the rarest.