To pohemi: You've made a couple of mistakes there.
Ketones are a type of partially digested fat which are used in place of sugar. Normally, the body has a store of glucose (actually it's stored in the muscles and liver as a polymer called glycogen), and this is released when the glucose in the blood starts to fall.
Insulin is the control system that tells the body how much glucose it has, and what energy source to use.
When you eat, high blood sugar causes insulin to be produced. The insulin causes glucose in the blood to go into the muscles and liver where it is stored as glycogen. Without insulin muscles and liver can't absorb the glucose. (Basically, glucose is unable to cross cell membranes on its own. Cells which need glucose have special transporter molecules on their surface which grab glucose molecules and drag them inside. Insulin is needed to switch these on).
When you are hungry, and the body reduces insulin production, the flow of glucose reverses - i.e. out of muscles.
When you are starving, the body virtually stops producing insulin, and glucose reserves continue to be raided. Certain organs (like brain and kidney) can't burn fat - if glucose reserves were to run out, this would be a problem. However, when the body thinks it's starving (very little insulin at all) in addition to glucose flowing from muscles and liver, a second emergency energy supply comes on stream: ketones. Ketones are essentially partially digested fats. They are produced in the liver - and can be burned by vital organs in place of glucose. Small quantities of ketones can be produced in muscles from protein, but the dominant source is conversion of fat by the liver.
So, diabetes is inappropriate loss of insulin - no insulin means the body thinks it is starving, whereas in reality there is so much glucose available it is becoming toxic.
Ketoacidosis can occur in diabetes when there is no insulin produced in the body. Even in starvation there is always a tiny trickle of insulin to keep ketone production in check. Without any insulin, ketone production goes into overdrive and produces toxic quantities of ketones and their related ketoacids.