They acknowledge it briefly. Captain Shaw grumbled, “Forget all that weird shit on the Stargazer, the real Borg are still out there.”

Picard Season 3 was explicitly being pitched as a TNG reunion season. They knew a lot of viewers would be jumping in mid-show, so it intentionally doesn’t rely heavily on the canon of the first two seasons to enjoy.

I liked the first two seasons for what they were, but honestly I get it. Picard’s premise of, “Legacy and new characters getting into adventures away from Starfleet” would have been tricky to balance with a full TNG cast reunion. Leaning into TNG Season 8 vibes made sense.

Not retconed per se, they just can't make their mind up on what the series is and keep radically changing direction and dumping prior development and characters. Changes are often for the better and don't directly contradict but there's certainly a lack of any common thought in the story they're trying to tell.

There's nothing contradictory about the seasons, and they were written and filmed back-to-back. There's no need for a retcon.

Well, that's a decision you'll have to make for yourself. I happen to have grown up on DS9, and in my heart there's not much room for Worf's Wacky Adventures on Risa; people a couple years older than me tend to have performed some personal, private retconning of at least one episode of TNG's first season--if not more. And I have just finished the novel "Spock's World," and realized I wish I'd read it years ago and some of the thing's Diane Carey wrote in that exceptional book are better than the contradictory idea's Paramount officially introduced in later media.

What season 2 of Picard means to the producers is far less important than what it means to you--and if it inspires you to go back and watch TNG, you may want to jump straight to Season 2 of that show, as well.