The reason you are getting a 0 element is due to your initializing the array to 0. If you change that to 111 you will get a diagnal of 111 elements. So this illustrates that you are simply never replacing those elements. I believe your question is why are they not replaced.
To explain why run your VI with highlight execution on and notice the behavior of the 2 loops.
For the first run (i=0) of the outer loop you will run the inner loop 0 times. Therefore you never replace the 0,0 element. The inner loop never runs.
For the second run (i=1) of the inner loop you will run the inner loop 1 time (i=0). So the inner loop will set the inded of row 1 col 0, and then its done.
So I am not sure what exatly you are trying to do, however because of the 0 index o
f loops, you are never getting the 0,0 1,1 etc runs. You may be able to get the behavior you want by running both loops the 9 times, without incrementing the inner loops runs.