I agree -- to me, the key thing about a diorama is the narrative (maybe because I was brought up on Shep Paine). When small son asked me "what is a diorama, daddy?", my answer was "a model that tells a story". A diorama should not be simply a "photograph" of a moment (and don't get me wrong, I know great photographs tell stories too...) -- it's a story, not a historical documentary or faithful record. Without animation, character, tension, structure, a diorama simply doesn't work.
I'd say if your student wants to tel a story, and has a passion for it, let him make what he wants; if he just wants to shock with a gorefest, ask him why. Of course, he could then just call it "art", and refer you to Jake and Dinos Chapman (though I'm not sure if they've made it to the US!)
BTW, if you want to see stunning modelling that _is_ also world-class modern art, check out the work of Ron Mueck
Bestest, M.