To evaluate the usefulness of spectroscopic techniques for diagnosing realistic solar plasmas and to better understand the physical origin of coronal heating, we have simulated observations of model coronal loops that are heated randomly and impulsively by nanoflares. We find that the emission measures, densities, and filling factors that are inferred from spectral line intensities (EMs, ns, and s, respectively) are generally an excellent representation of the properties of the nanoflare-heated plasma. To better than 25% in most cases, EMs indicates the amount of material present in the ? log T = 0.3 temperature interval centered on the peak of the line contribution function, ns indicates the average density of this material, and s indicates the fraction of the total volume that the material occupies. Measurements with lithium-like lines are much less accurate, however. We provide diagnostic values and line intensities for many different spectral lines that can be compared directly with observations from the Coronal Diagnostic Spectrometer and Solar Ultraviolet Measurements of Emitted Radiation instruments on SOHO and from the future Extreme Ultraviolet Imaging Spectrometer instrument on Solar-B. Such comparisons will provide the first ever rigorous test of the nanoflare concept, which has enormous implications for understanding the mechanism of coronal heating.