The Vatican's opinion of Diem's regime, in public, seems to have been one of 'no comment' judging by the lack of public statements. In private, Diem may have initially enjoyed at least some support from the Vatican. Later, the Vatican distanced itself from Diem due to the unpopularity of the Vietnamese leader in his own country.
According to Wikipedia, referring to the period 1950 to 1954,
Diệm spent most of the next four years in the United States and Europe enlisting support, particularly among fellow Catholic politicians in America and Vatican officials. Diệm's success with the latter group was helped by the fact that his elder brother Ngô Đình Thục was the leading Catholic cleric in Vietnam and had studied with high-ranking priests in Rome.
Diem was initially strongly backed by Francis Spellman, the Archbishop of New York, who was very anti-communist and close to Pope Pius XII. It was Pius XII who approved the Decree against Communism in 1949 so it is feasible that he also supported Diem.
However, it seems that Diem's harsh policies towards Buddhists and the high level of corruption may have been a source of embarrassment to the Vatican for, in a 1963 issue of the Catholic Weekly,
it is noted that: "Archbishop Thuc later told reporters in Rome that the Vatican had ordered him to keep silent about his activities and the affairs of his country while he was outside Vietnam.”
The relationship between Diem and the Vatican seems to have already been strained - he had opposed the Vatican's choice for Bishop of Saigon, preferring instead the aforementioned Thuc, his brother.
Both John Cooney, in The American Pope (on Spellman), and especially Avro Manhatten, in Vietnam: Why did we go? claim that the Vatican was deeply involved in supporting Diem but both books are controversial to say the least. See comments here (Cooney) and here (Manhatten), for example.
The Catholic Church in Sydney & the Vietnam Conflict by C.F.Bowers
Catholic Vietnam: A Church from Empire to Nation by Charles Keith