I saw YouTube videos of this Easter Egg dungeon and its Feat of Strength (FoS) "Smash! Jay, Smash!" placard, but its generation conditions are unclear.
Do I need to beat the Skeleton King first and return to the cemetery? Do I need to be in Nightmare mode to access it? Does it show in Hell or Normal modes? Are there other party or level restrictions? Is its appearance random or is it always in the cemetery? I only find Defiled Crypts.
Development Hell is a rare Random Dungeon that can be found in Act I. You need to have access to the cemetery, so the minimum requisite is the Shattered Crown quest. If the game you're playing has rolled for the dungeon to appear, you'll find 4 crypts opened in the cemetery, instead of the usual 3, as you can see from the following screenshot (the crypt is clearly marked as "Development Hell").
As you can see from the video you've linked, you don't need to kill Leoric(they're still searching for the chancellor's altar). Also it looks like a single player game, but it can also happen while in a party,as you can see from this image:
There have been various reports of its occurrence in Nightmare, Hell and Inferno difficulties. It still has to be found in Normal, but my guess is that it cannot happen at that difficulty.
Just did it last night on Inferno. Random crypt spawn when exploring the cemetery. REALLY fun to clear through. You get to kill Jay and get the Feat of Strength (as mentioned) and each mob inside has a different name for different people who helped make the game (also includes their title i.e. 3D Artist).
I'd highly recommend checking it out if you ever get lucky enough for it to spawn.
I've found him in one of the 3 random crypts on nightmare, before doing Leoric. He is just a purple elite.
