Watched it with my wife last night (first time viewer of Trek). She laughed when I told her that some people regard it as the pinnacle of TNG. If it wasn't for Stewart this episode would stink. And the actress that plays his daughter is HOT.
For me, the pinnacle of TNG is "Q, Who"/"The Best of Both Worlds I"/"All Good Things". "The Inner Light" isn't in the same national park as those three.
There are a lot of things that I like about the inner light. In fact the reason why it is so dear to Picard is that he gets to live the life that deep down he always dreamed of (having a family, children...) but that he'll never get to live in this life because of his obsessive workaholic compulsion and because there is something in his character that will make him ruin any chance at happiness that presents itself to him.
His only true carefree wholesome life, he had it in the episode with a wife, children and eventually grandchildren that he loves.