Skin of Evil is a fine episode. It's just one or two production problems that hamper it I think. The problem with Armus was just his appearance really, though we have to see quite a lot of him. Then there's the strange black blob on Yar's face as she dies, which was distracting.
I already knew Yar was a goner when I watched it, due to starting TNG in season seven before it looped back to the start - All Good Things probably did a massive job in convincing me to watch the series from the start, but when I asked about Yar, my friend told me she died. I think this lessened the impact of her death somewhat when I was anticipating it.
I did like Troi speaking to Armus though. Armus himself was a very intriguing idea, and the thought of him leaving the planet was a bad idea. The thing I loved the most, though, was the gathering in the holodeck. It was perfect. And then Data questioning his understanding of his thoughts on what had happened was brilliant for his character.