It's sad, but "The Pegasus" comes less than halfway through TNG's seventh season. What follows is one of the series' longest stretch of mediocre episodes, with the exception the excellent "Lower Decks", "Preemptive Strike", and series finale.
This episode inevitably evokes two episodes - "The Defector" (classic battle of wits with the Romulans) and "The Drumhead" (classic battle of wits with a rogue Starfleet admiral). Once the plot gets going, it rushes past and keeps the viewer on the edge of the seat. We get Picard dressing down Riker for maybe the only time in the series, showing off Patrick Stewart's acting ability. We get Jonathan Frakes showing, as he often did late in the series, that he was not an acting lightweight.
Exceptional and a nice little memento of what TNG could do at its peak.