There is a recent report from Harvard Stem Cell Research Institute (Dr. Douglas Melton Lab), where they have made iPSC derived pancreatic Beta cells from T1D patients' skin fibroblasts and did functional analyses. According to their paper in vitro and in vivo those cells responded to glucose that was comparable to beta cells derived from a non diabetic donors.
Here is the link : http://www.ncbi.nlm.nih.gov/pubmed/27163171
As I mentioned, there are several labs who have done similar work, however, there have been no tests in human as of yet - a point very relevant to the original question!
A considerable amount of work needs to be done related to safety and efficacy before the FDA may consider it for an IND in human.
ViaCyte have recently had their VC-01 treatment which is encapsulated pancreatic progenitor cells derived from embryonic stem cells approved for Phase 1/2 clinical trial. However, the success of the encapsulated cells relies heavily upon in vivo maturation of the pancreatic progenitor cells.
I agree there is definitely more to it than just in vivo maturation of the cells. There are other groups though who as you mentioned have worked on developing insulin-producing cells that function in a similar manner to beta cells, without the need for transplantation to switch the maturation process. It will definitely be interesting to see whether ViaCytes cells do mature as the trial progresses, as this is one of the defining features of the treatment.
We should also mention that mesenchymal stem cells have been utilised in a number of clinical trials to abrogate autoimmunity with varying, but little success. Perhaps used in combination with functioning insulin producing cells to abrogate immunity against the transplanted cells would be an interesting strategy?
Type 1 diabetes is an appropriate candidate disease for stem cell therapy, as the causative damage is localized to a particular cell type. In theory, stem cells that can differentiate into b-cells in response to molecular signals in the local pancreatic environment could be introduced into the body, where they would migrate to the damaged tissue and differentiate as necessary to maintain the appropriate b-cell mass. Alternately, methods could be developed to coax stem cells grown in the laboratory to differentiate into insulin-producing b-cells. Once isolated from other cells, these differentiated cells could be transplanted into a patient. As such, stem cell therapy would directly benefit persons with type 1 diabetes by replenishing b-cells that are destroyed by autoimmune processes, although it would still be necessary to mitigate the autoimmune destruction of b-cells.