It can be used to polish the water but I do agree it should not be run continuously. The filter will not harm any of the animals but it will remove much of the planktonic life.
Why do you wish to run a diatom filter? If it's a algae problem, I would look to the cause, not something that clears the water. Typically the greatest contributor to diatoms is silicates.
The diatom powder being refered to is diatomaceous earth. Which is basically ground fossilized diatoms. Which can be used for filtration, pest control and metal polish.
Cheers
Steve