Secret Cow Level
From Diablo Wiki
The Secret Cow Level is an Easter Egg; a funny bonus area in Diablo II that played on years of jokes about a secret level that could (supposedly) be reached in Diablo, by repeatedly clicking the cows found just outside of town. The Blizzard North guys were inspired by this to work up a full sized level of walking, mooing, halberd-wielding cows, and the Secret Cow Level was born. (See the in the Diablo 2 section of this wiki for full details.)
The level was amusing, but only a diversion in Diablo 2 Classic, since it could only be entered once per character/per difficulty level. It wasn't very rewarding, other than in laughs. That changed in the Diablo II Expansion, when characters were able to enter the level repeatedly, so long as they did not get credit for completing the quest by killing the. Along with this repeat visit ability, the cows were greatly increased in damage, experience value, and item dropping capability. By v1.09 the Secret Cow Level was the most profitable area in the entire game, based on the speed with which it could be entered and the ease with which certain character builds could slaughter the vast numbers of slow, resistance-less .
The v1.10 patch lowered the experience reward and item dropping potential of the cows, and largely returned the level to the amusing novelty status it had originally been designed to possess.
Cow Level Controversy
As we look forward to Diablo III, the Secret Cow Level remains a contentious issue. Some players remember it fondly and hope for another such secret area, while others revile it as a broken, over-rewarding component of the vast slot machine that was Diablo II. The real debate is seldom over the level itself, but over the value such a secret level should have. Should it be a minor diversion, interesting of itself but not especially rewarding or important? Or should it be a real reward for doing something secret and clever?
Blizzard's Diablo III community manager Bashiok made his feelings clear about the issue in August, 2008. 
- I disliked the secret cow level from a design standpoint though. It actually angered me that it existed at one point, maybe it kind of still does.
- I'm not a designer, at all, but in my opinion and from a design standpoint I think the secret cow level was a failure. For a long time it was one of the most lucrative ways to level, and one of the best places to MF. For an easter egg, something fun and whimsical, to overshadow the entire rest of the game was a huge problem, and one that existed for far too long. It was a fun idea, a cool nod to the rumors that spawned it, but in execution it was just... game breaking in some ways.
A Secret Level in Diablo III?
Might there be a secret bonus level in Diablo III? If not one filled with cows, or purple penguins... something? D3 project lead Jay Wilson had fun commenting on that issue in a July 2008 interview with Mtv's gaming blog. Will there be such a level in Diablo III? 
- Wilson: [laughs] We don’t really know at this point. I really like the idea of secret stuff that Diablo II put forward, but it’s not the kind of thing we would decide this early. But if we have something, I can assure people will be happy with it.
- I will say the thing I liked about the cow level was that it wasn’t just fluff; there was stuff that you could do there that actually had purpose within the game. The thing I didn’t like about it was that it almost replaced part of the game. And so, if we looked to add something like that, we’d be a little smarter about it. We would want it to have a function within the game, but we wouldn’t want it to replace any core content, which is something that I think the cow level really did.
- Diablo II had a lot of little oddities to it that made the experience not as usable. I certainly wouldn’t want things like, ‘Don’t kill the cow king because we’ve got to keep the level open!’ We would avoid scenarios like that. The secret of a cow level is a cool secret. The secret that you’re not supposed to kill the king because you’ll ruin the cow level forever — that’s a bad secret. So we would try to get rid of some of the bad ones.
It sounds like they've given the issue some thought, and since part of their goal with Diablo III is to make it everything Diablo II was, but bigger and better... the likelihood that we'll see some sort of secret level is pretty strong.
Rainbow and Unicorn Level?
First came the D3 is too-colorful!!1 controversy, then the D3 Team's reaction in the form of some hilarious Blizzcon t-shirts, and then the deadly rainbow fart attack unicorns, and other doctored screenshots. This whole swing of events has given plenty of Diablo III fans the idea that if there is a secret level in Diablo III, it will probably be something inspired by the "too colorful" issue, and that we might well be fighting against (or with) rainbow-crapping unicorns, or angry fluffy clouds, or cute smiling miniature suns.
This is entirely speculative and unconfirmed by anything official, but it's not out of the realm of possibilities. The Diablo II Secret Cow Level got its start in similar fashion; it was just an April Fool's joke for a screenshot, made in response to the persistent Diablo I secret cow level rumors, and there was so much fan reaction and enjoyment that the team went ahead and put it into the game. The D3 Team is under no compunction to include a joke secret level, but Blizzard designers have always shown a good sense of humor, and as famous and enjoyed as the D2 secret level was, they've go to be feeling some pressure to live up to that standard with Diablo III.
Only time, and possibly April Fools screenshots, will tell.
Secret Cow Level in the RPG
There is also a version of the Secret Cow Level in the Diablo RPG. It mimics the features of the cow level in the game.