It’s ill-defined in the sense that it doesn’t uniquely define the set. There are at least two different sets that D could be (one containing it and one not containing it), hence the expression doesn’t denote a well-defined set. (*)
The axioms of ZF do not allow to form that expression, so the set doesn’t exist in ZF.
(*) This is from a universist view. In a pluralist view, one wouldn’t say that the fact of the matter of whether D contains itself or not is independent from naive set theory, and that there are set universes where it is the case and others where it isn’t. But I would hold that naive set theory starts from a universist view.
I think "Foundation" axiom F forbids your recursive set, and there are models of both core set theory satisfying either F or ¬F, so F is independent of core set theory (core -> not including F or ¬F). F is normally assumed in set theory, but Aczel has worked with "ill" founded (¬F) set theory models. Just as with the axiom of choice. No religion wars, just people pushed to be explicit with assumptions.
The axioms of ZF do not allow to form that expression, so the set doesn’t exist in ZF.
(*) This is from a universist view. In a pluralist view, one wouldn’t say that the fact of the matter of whether D contains itself or not is independent from naive set theory, and that there are set universes where it is the case and others where it isn’t. But I would hold that naive set theory starts from a universist view.