It is never good design practice to use way more circuit than you need to reliably do the job.
And I guess if this is the case 3.3V droped by that level converter did fry the diode
"the ASIC can only guarantee 0.4V when sinking up to 2mA. "
I/O Pin 6 <-> (5V) LVC (3.3V) <-> resistor -> ASIC //DATAI/O Pin 7 <-> (5V) LVC (3.3V) <-> resistor -> ASIC //STROBE
3) The LVC MUST be powered from 3v3 in order for this to work.