This happens when Steam doesn't shut down properly. All you can do is run the re-install. The game files are still there and it will first see if there is no issue with them. If you're lucky it won't find and issue and won't re-download the files and will just re-install using what is already on your computer. Otherwise, yes, you will be stuck with re-downloading the game.
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Can I attempt the re-install in a different hard drive? Or does it need to be the same one as my current files for D2, as that one has run out of space.
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If you wish to re-install to a different hard drive you can certainly do that. If you go that route, I would recommend removing the current installation on your computer completely, then configure Steam for the new drive location. Once those two steps are done then have Steam re-download and install the game in the new location.