As long as the fight remains on the feet, we're going to see what will primarily be a boxing match.
B.J. Penn's boxing arsenal includes a very good jab, powerful combinations, good control both at range and in close quarters, excellent head movement and some of the best counter-punching in the division. He also boasts one of the most tried, tested and true chins in the sport, and has never been knocked down in his MMA career.
Penn displayed his jab most prominently in his fight with Sherk, whose face was badly cut up by the end of three rounds.
In a display of great counter-punching, Penn completely nullified Kenny Florian's offense at UFC 101 before taking him down late in the fight.
Penn does occasionally use knees and kicks, but they're not primary parts of his arsenal.
Penn did struggle against the diverse and speedy attack of Frank Edgar, the dirty-boxing style employed by St-Pierre in their rematch, and with leg kicks that Penn can counter but often doesn't defend effectively.
Nick Diaz has become known for a "volume punching" style that is nearly unique to MMA. Diaz walks his opponents down, stays within short proximity of his opponent and overwhelms with a constant stream of jabs, crosses, hooks and body punches.
Diaz has an excellent chin that he often relies upon in order to employ this strategy.
Some of Diaz's most effective offense comes when he's able to pin his opponent against the fence and unload with flurries. He did this to good effect against both Evangelista Santos and Paul Daley, and body punches especially seemed to take the wind out of their sails in those fights.
Diaz has been knocked down with power punches before, but has great recovery. If there's another weakness in his striking, it's with his vulnerability to leg kicks which he doesn't really check or counter effectively.
When Penn strikes with Diaz, it seems likely that Penn will try to counterstrike and stay at range. Diaz will likely try to wear Penn down with consistent volume from range or, perhaps, push Penn against fence and try to unload with body shots and flurries.
Although Diaz has a reach advantage, Penn should still be able to counter effectively early on. The question will most likely be about how well Diaz's chin holds up early on as Penn counters.
If Diaz is able to remain on the offense without getting hurt, there's a good chance that he can wear Penn down and take over later on in the fight.
That said, I think Penn has enough power and boxing ability to hurt or possibly even knock down Diaz early, and if Penn is in the driver's seat, it'll be that much tougher for Diaz to wear him down.