I'll take a stab at an answer. The issue of what makes something "needed" is probably more complicated (has more gray areas) than my simple response would indicate, but I think it gets at the general distinction between the allowed and banned substances.

For many people, and I guess the sports authorities, insulin and similar drugs are OK because they're taken to correct a deficiency (in your diabetes example, a deficiency that would kill an athlete if left untreated). Saving lives is a positive value in our culture.

On the other hand, steroids and other drugs are banned because they're not being taken to remedy a deficiency, but in order to gain an advantage. Our culture wants athletes to compete based on "natural" talent and training (time dedicated to practice, innovative training methods) and wants victory in competition to be gained by excellence on these factors rather than victory due to superior chemistry. Winning via performance-enhancing drugs isn't a positive thing the way saving a life is!