No defense doesnt diminish however you wont be getting +40% parry or dodge from +defense. You can't stack that much defense.

edit: as for the diminishing returns I just read it this morning those are the numbers posted on elitistjerks that have been tested (I might be off by a few percent, but they are in the general ballpark.) Dodge it makes sense that it has a higher cap as it is the ONLY avoidance stat bear tanks have.