The diagnostics should not be used now, it was meant for earlier versions whilst Art was trying to figure out where problem were. Disable the plugin and see if it works.
The things you need for threading are
Use Index input(Not Timing)
Take the tick out of disable Spindle relays, even if your spindle is totally manually controlled
Use spindle feedback in sync mode
Have Index debounce low, I always have 0 but some need a small amount
Make sure your spindle pulley setup is correct if controlling from Mach as you need the spindle speed set to Max there for the gear you are using (if any)
Call the spindle from Code, MDI by using a M3 or M4
Hood