Gideon is established as still being alive when he meets Bo-Katan, and it’s not like he starts hunting Gideon prior to Grogu’s capture… could be that Grogu’s capture is what establishes Gideon as being alive at all. Boba might even mention it, I know he mentioned Din being hunted.
But even after Grogu was captured, Mando would still have no idea Gideon was alive. All he saw was some weird droids kidnapping Grogu, and a Star Destroyer jumping into hyperspace. Nothing that confirms Gideon’s survival. I still maintain that cutting Chapter 12 creates a plot hole because of that, and it should be kept in at least a trimmed fashion.
So, while the tanks are fun, and seeing familiar faces that don’t contribute to the story or character development is fun, I think story beats and major character development to the protagonist should be prioritised.
But the character development given to Din didn’t really last. He took his mask off, but after that he put it back on and pretended it never happened. Neither episode is really crucial to the character development, so I’d prefer the one that establishes several new plot elements over an episode where the changes don’t really have much consequence.
Character development is defined by a character making a choice. Having witnesses doesn’t define the moment (which there is one living witness). Think back to when the Armourer asked him if he took it off in front of another, he could have lied… but it’s about honour. That sacrifice and his honour are still being risked even if the Imperials die. He’s still sacrificing everything he held dear prior to meeting Grogu. That’s worth keeping, especially since it was such a big part of the first film’s climax that he was willing to die rather than remove his helmet to receive medical help.
Also, having multiple characters talk about Gideon and inform Din he’s being hunted right before the Imperials kidnap Grogu (again ignored that Bo-Katan mentioned Gideon isn’t dead). There’s no plot hole.