Up until this point the second season was a substantial improvement on its predecessor, but still somewhat lackluster. But "The Measure of a Man" was a massive leap forward, much better than any of its predecessor and easily worthy of mention next to any other episode of the series.
"Issue shows" in TNG, especially in the first two seasons, tended to be somewhat heavy handed as the writers bludgeoned us over the head with the moral. In this one, the story seems to be about something bad that's going to happen to a favorite character; it's only later on that we realize (maybe at the same time at Picard) the moral implications.
The writing on this episode is among the best -- maybe THE best -- on the series, and I was very surprised to learn it was an unsolicited script by Melinda Snodgrass. Riker and Picard's speeches in the courtroom are particularly memorable, but upon a second viewing a bunch of other gems popped out at me. The histories of various characters -- Data and Maddox, Picard and the JAG -- provide some additional electricity to the plot.
The acting is also exceptional. Despite this episode being "about Data", this is at least as much a Picard episode -- and Patrick Stewart gives a tour-de-force performance, his best up until this point. Brent Spiner and Jonathan Frakes are in peak form, and the two guest characters (Maddox and the JAG) execute perfectly. Guinan's 3rd appearance on the show is the first substantial one -- she would reprise her role as Picard's conscience in future seasons.
I could write more, but I'll end this review with 3 nice touches that I enjoyed:
1) The poker game makes its first appearance. Despite not being directly related to the main story, it provides the perfect setup for what follows.
2) Data's going-away party was a clever idea. Data's ripping off the wrapper is just perfect.
3) Riker's preparation for his prosecution. The excitement he shows at discovering Pinocchio's weakness, followed by his horror at experiencing this excitement, was again a nice touch.