One of the most beloved episodes of the third season, and there's a reason for that.
"Magic Duel" is the first truly great episode of season 3, boasting stellar writing, some great character moments, and a fantastic plot. While initially I dreaded Trixie's return to Ponyville, I was surprised to find myself enjoying her screen time a fair deal. But more than that, the visual inventiveness, great pacing, and fantastic humour make this a stand-out episode.
This episode's humour is largely derived from visual events, ranging from Trixie removing Pinkie's mouth to Rainbow Dash checking herself out. Indeed, visual design is one of the episode's greatest strengths, and while it's not as pretty as "The Crystal Empire", there's a fair deal of creativity here. There's a fair quantity of jokes to be found here, and they're consistently clever. This is an episode with great humour.
Main characters have a few great moments, particularly Fluttershy when she's outside the dome. While her nervousness about finding Twilight doesn't really fit alongside her shouting at Twilight in the cold open, it's still an entertaining character moment with some really good delivery. The voice acting is of particular note in this episode, as delivery of the dialogue contributes a lot to the humour. Fluttershy in particular is played extraordinarily well, with with lines delivered in whichever way is most fitting to the situation.
That said, character development is absolutely absent from this episode. It's not exactly filler, per se, but it doesn't move the show forward in any particular way. Nobody really grows, except perhaps Trixie, but her "character development" near the end is unconvincing because nothing's actually changed in the motives that caused her to buy the Amulet in the first place. As for other characters? No development whatsoever. They're completely static over the course of the episode, and there's a reason for that: This is a fanservice episode.
That's not necessarily a bad thing. Three seasons in, having a fanservice episode is a neat little thing to put in there, and this is a very well executed example of such. There's the return of a popular character, a number of jokes that seem geared towards the periphery demographic, and a relative basis in comedy and action. The episode does include Trixie's apology, but aside from that it has absolutely no consequence on the series whatsoever... and that's alright.
This episode is partially beloved BECAUSE of the fanservice. This allows for a bunch of entertaining, memorable moments to be packed into the episode, and that's what makes it so fun. However, that also results in it being somewhat shallow, which is a bit of a shame. Still, sometimes a fun piece of fanservice is all you really need from an episode, and Magic Duel delivers.