That video is from 2008. The quote I am talking about was afterwards.

It was in response to someone asking about playable Naga, if I remember correctly. And again, if I remember correctly it was Bashiok who responded. It wasn't just Naga, it was ALL non-bipedal races were impossible.

Would it be possible to overcome that limitation? Possibly. It would also be possible to overcome the hardcoded default 16-slot backpack, but it would be a shitton of work. This is how, from the description given on the way equipment works, the basic method the game uses to show equipment on characters. Without a proper leg region, the game can't equip anything there (this goes beyond artwork) and you would be left with a race who could never visible equip a leg-slot item. Unless Blizzard had a change of heart, and didn't care about an entire race being visibily incomplete with their gear, the only other thing to do would be rewrite some of the basics of the engine, something they are very, very wary of doing and might be more trouble than it's worth (again, default 16-slot backpack limitation is an example.)

If we ever saw playable Naga, they would be changed from the Naga currently in game. They would have legs, and probably a long tail, and two arms. Or in other words, look barely like the ones in the game. Some mutation or offshoot from the original race.