Hmm... a very good question.
I have several favorites, but narrowing the question down to a single episode would be difficult. This is the season of Pokémon I've watched the most, though. I even recorded most of the season on VHS in order to rewatch later, because I didn't think there would be reruns or anything. So I actually have tapes with the original 1990s commercials and everything that I still watch from time to time, although the tapes do seem like they're probably going to degrade faster because I recorded them in EP mode.
I think, in all honesty, I would have to go with Haunter vs. Kadabra. The stakes are so high in that battle, higher than usual for Pokémon. It's a very serious episode. The consequences of losing are more than just not progressing in the quest, they could include being trapped forever in the form of a toy. Also, I like the way it delves into Sabrina's psyche, and the way she represses a part of herself that makes her a very strong trainer, and yet somehow causes her to become cold and lose a bit of her humanity in the process... and that other part splintering off, expressing itself in totally inappropriate ways. Like turning people into dolls. It's all very psychological and thought-provoking.
You have to wonder how many of us do become like Sabrina as we get older and try to become adults... do we just repress our childish side and convince ourselves we've outgrown it, with unintended consequences when those repressed tendencies resurface? Perhaps a lot of us have internally and metaphorically the same kind of problem Sabrina manifests in a more literal and extreme way. A personality fragmented by trauma into different and incompatible faces, to the point that we can't be sure which of them is really "us" anymore.