The Diablo 2 Secret Cow level has been succeeded by a newer, even sillier secret area known as Whimsyshire.
Blizzard be trolling those that criticized the game for being too colorful when screenshots first emerged. There were a few whispers when the team created a new shirt design complete with rainbow, ponies and a smiley sun last year (see above pic).
To find the secret level you need to first reach level 4, and then take the Staff of Herding to the Cow King's Ghost, who can be found at Old Tristram Road near a pit containing a mysterious red glow.
To create the staff of Herding you must collect:
Liquid Rainbow-Found by saving the old man in Oasis in Act II, it's in the Mysterious Cave in the Mysterious Chest
Leoric's Shinbone-Found in the fireplace of Leoric's Manor in Act I
Gibbering Gemstone-This is a random drop object that only appears in the Caverns of Frost in Chiltara, Act 3. Look in the Ballistae fight area
Wirt's Cowbell-Purchased from Squirt the Peddler in the Caldeum Bazaar in Act II
Black Mushroom-found in a room in Cathedral level one, Act I
Plan: Staff of Herding-Dropped by Izual in Act 4
The aforementioned mysterious glow will turn into a rainbow once you've chatted to the Cow King's Ghost with the Staff of Herding in your possession. Click the rainbow and you'll find yourself entered into the magical mystical world.