As Sailor Steve said, SH3C engine malfunctions and h.sie's Diesel Damage Fix are completely different. They are not "either-or" alternatives, and in fact could stack very well on top of each other.
SH3C engine malfunctions could represent a whole range of serious engine problems. The in-game consequences are decreased maximum speed and/or increased fuel consumption (=decreased range). These - and ALL SH3C malfunctions and sabotage - are NOT repairable at sea. They remain in effect for the duration of the patrol, until (AFAIK) the sub returns to its
home port. They can not (again AFAIK) be repaired in a replenishment port. In the case of engine malfunction, they might represent some serious power-reducing problem, like cracked cylinders, a cracked main bearing block, or whatever you might think of.
h.sie's Diesel Damage Fix represents the risk of failure when an IC engine is operated above its maximum rated power. That BTW is exactly what you do when you operate the engines of any vessel above full speed. This does not result (necessarily,
) in immediate breakdown, but the longer the engines are overstressed, the more likely it becomes that a breakdown will occur. ("Captain, the old girl kenna take much more of this!") When a breakdown does occur, top speed is reduced, maybe drastically, and flank speed, even at the reduced top speed, is no longer an option. But the damage sustained is (AFAIK)
always repairable at sea, provided you have enough time. (Of course, the escort chasing you may not give you enough time....)
So the 2 certainly can, and should be used together. You don't have to choose one or the other.