The first version had option B.
I changed it because I thought that UX is better if you have still the posibility to peek/see also the highlight of invisible labels. E.g. in order to pick the right one to make visible again.

May be A is a better approach. But I am not sure, if it is less confusing if the invisible label pops up again as soon as you leve the visibility column.
I think in both cases (A and current version) you have to document/explain the behavior and get used to it. Otherwise it can irritate.

Yes, I agree. Well, not completely I guess, since I vote for B. The current state confused all testers (and me at first when I double-checked what's going on, and after I understood I still would consider it a bug in this state). I see the good intentions why you changed it from initial B to something else, but the disadvantages proved to outweigh.

In T30417#258648, @kislinsk wrote:

but the disadvantages proved to outweigh.

That you cannot tell. You don't know how testers would react to option A. May be it is equaly irritating to them. And may be they would missing the highlighting of invisible labels if the realy would work with it... 🤔
If we want to base it on user feedback in such an unclear situation, one would need to offer/explain all options and let them choose/poll.

In T30417#258666, @floca wrote:

That you cannot tell. You don't know how testers would react to option A. May be it is equaly irritating to them. And may be they would missing the highlighting of invisible labels if the realy would work with it... 🤔

Yes, that's why I vote for (B). It is also the most natural solution. For example compare to other applications like Photoshop or Inkscape. If there is an option to highlight hidden objects at all, it is deeply buried in some preferences. :D

hm. I see.
May be:
B + if you press shift while hovering, then always highlight?

This is a good idea.