There's pretty good evidence for the involvment of an infection of mycoplasmas (fat-loving tiny bacterium) being involved in the development of the illness. Searching 'diabetes and mycoplasmas' on youtube turns up data about it.
Mycoplasmas tend to up the amount of free radicals being generated by a cell, lowering the amount of oxygen a red blood cell can carry, and hiding out in the endocrine system.
They tend to colonize body cells and munch on essential fatty acids.
There's a few more things involved, like the emotional involvement that you mention, and other events that create the perfect storm for a chronic infection to set in. Viruses are pretty good at weakening the system, and emotional trauma!
I like the chinese medicine view on the pancreas, that it has a great deal with self-worth and love/value of self.