This was a smart choice for him and for Minnesota Dems in general. If he ran for governor, the seat would be gone (probably even more gone than MN-01 is because at least Rochester is trending Dem there) and he would probably just split the rural and moderate vote with Walz and let a far left some dude through the primary.
If Trump's margin in MN-08 is the new norm, then Dems are in big trouble going forward at the statewide level in Minnesota.
In the long run, yes. But Clinton still won statewide and there is probably some more swing left in MN-03 and possibly MN-02 to counteract what is happening in the outstate for a couple more cycles.