I don't think it's unreasonable for both things to be true simultaneously.
Diggins' on-paper results this season have been strong, but her performances to the eye test have not necessarily been as impressive to reach them, at least through December. She's looked far better here at the Tour, but then so much of it being at Toblach which, if not her personal favourite venue (I haven't seen whether she has professed a preference for any other over this one) is one that she always scores excellent results at, the shocking route, and the absence or lack of form of many major competitors pre-Olympics, may have made that improvement slightly artificial - nevertheless her actual skiing has looked better.
And yes, it's perhaps better to ration out racing and not go all out in everything at 34 the way she did at 27, but simultaneously, Diggins is both somebody who has historically benefited from racing a continuous calendar and maintaining her shape through constant competition, regularly shouldering a heavier workload than most; and somebody who has a very high base level and, especially based on the kind of increasingly generic and homogenous calendar that FIS has been presenting for the last several years, can continue to score strong finishing positions even when she isn't on form owing to the nature of the races provided and the skillset she has.
I would say though, that needing to be better than her at the Olympics will simply be a matter of one of her fellow elite competitors having better form, it's just that others are going for a higher risk strategy of a single super peak there. Diggins is a feisty competitor, no doubt about it, but the 'nobody fights as hard as her' narrative is perpetuated more out of her preferring to stay in racing rather than reduce her calendar, and deficits in her technique that look like she's fighting herself. For, say, Frida Karlsson to beat Diggins at the Olympics, she probably doesn't "have to kill her" - well, except maybe in the sprint, and then Frida is liable to kill more or less anything in her path if she does Strandvall her way to the final rather than just Diggins; Karlsson is demonstrably an elite competitor capable of beating Diggins on her day, and has focused her season pretty much solely on Val di Fiemme. She may beat Diggins or she may not - neither result would surprise me. For somebody more along the lines of Coletta Rydzek or Karoline Simpson-Larsen, who've achieved unexpected strong results this season off the back of some of that Olympic super-peaking meaning some of those who regularly fill the top 10s are absent or under-strength, on the other hand, those types probably would have to kill Jessie to stand a chance of beating her at the Olympics now.