I don't its fair to make Hemachandra's diction an issue just because he's from Hyderabad!!
In the first place, Hindi and Urdu are just as big in Hyderabad as Telegu. Anybody growing up in Hyderabad could be as well versed in Hindi as a person who grew up in Delhi or Mumbai.
Getting back to Hemachandra and diction… Being from South India myself, I am especially sensitive to this issue of diction. I never really enjoyed the singing of very talented singers like Yesudas, SPB or Hariharan in Hindi, because I could always feel the difference in diction. But, in Hemachandra's case, the problem is so negligible, that its not even worth mentioning. 90% of the time his diction is OK. Listen to him sing "Lekar hum diwana dil", "Aanewala pal" or even the remix of "Chod do aanchal". I bet if someone didn't know who was singing it, they would not find any problem in "diction"… Maybe Hem would not be a good choice for hard core Punjabi/Bhangra, or Sukwinder type songs, but he doesn't have to sing those… there are enough singers whose voices are perfect for that!!
People should not jump to the conclusion that South Indian singers cannot sing well in Hindi. Some of the most talented singers in Bollywood today are from S. India… for example: Kay Kay, Shankar Mahadevan, A. R. Rahman… I think ARR's singing in Hindi is fantastic (Dil se re, Yeh jo desh hai tera, Piya Haji Ali, Ma Tujhe Salaam, Chale chalo, etc…)
If anyone still believes that Hemachandra's diction is a problem, he will definitely proove them wrong !!!