AN ACR FLC RPTS RESPONDING TO A GPWS PULL UP WARNING AND CLBING TO WITHIN 200 FT OF THE ASSIGNED ALT OF ANOTHER ACFT IN THE VICINITY. UPON NOTIFICATION; THE APCH CTLR INSTRUCTED THE CREW TO RETURN IMMEDIATELY TO 5000 FT STATING THAT TERRAIN WAS NOT A FACTOR.

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WE WERE ON A 270 DEG RADAR VECTOR AND HAD JUST LEVELED AT 5000 FT MSL WHEN THE GPWS TERRAIN WARNING SOUNDED. THE AUTOPLT WAS DISCONNECTED AND A RAPID CLB INITIATED. THE WARNING STOPPED AT APPROX 6500 FT AND CLB WAS ARRESTED AT 6800 FT. I CALLED BAY APCH DURING THE CLB TO TELL THEM WE WERE RESPONDING TO A TERRAIN WARNING. THEY RESPONDED THAT TERRAIN WAS NOT A FACTOR AND REQUESTED AN IMMEDIATE DSCNT TO 5000 FT. BY THIS TIME WE HAD LEVELED OFF AND WE EXPEDITED DSCNT BACK TO 5000 FT. ATC ALSO INFORMED US THAT WE HAD TFC CLOSE BY AT 7000 FT. I CALLED BAY APCH AFTER ARR TO DISCUSS OUR ARR OVER MT DIABLO. THEY SAY THEY NEED US AT 5000 FT OVER MT DIABLO DUE TO AIRSPACE RESTRS. THEY ALSO STATED THAT ANOTHER AIRLINES MD80'S ALSO USED TO GET TERRAIN WARNINGS OVER MT DIABLO AND THAT THE AIRLINE HAS MADE A GPWS SOFTWARE CHANGE TO ELIMINATE THE PROB. I WOULD LIKE TO SEE THE ROUTING CHANGED SO THAT WE DON'T HAVE TO COME IN RIGHT OVER THE HIGHEST POINT WITHIN 50 MI. SUPPLEMENTAL INFO FROM ACN 333329: RECEIVED GPWS WARNING PULL UP COMMAND.