Step 1: Key to this question is the anatomy of the third nerve: motor fibres lie centrally, while the parasympathetic pupil-constricting fibres travel superficially around the periphery. Step 2: Diabetes causes a microvascular (vasa nervorum) infarct that damages the central core of the nerve first, sparing the well-perfused outer pupillary fibres. This is the classic pupil-sparing third nerve palsy. Step 3: Clinically, the patient develops ptosis and an eye that is depressed and abducted, yet the pupil reacts normally to light early in the course. Step 4: Hence the earliest sign is a preserved (normal) light reflex; loss of the light reflex points toward external compression rather than diabetic ischaemia. \[\boxed{\text{Normal light reflex (pupil sparing)}}\]