I think there’s little doubt that Madarame’s confession is one of the most significant events in Genshiken. I’ve felt sort of conflicted that it happened because it is possible for someone to move on from a former love without the confession and rejection you see so often in anime and manga, but the series makes it clear that Madarame was incapable of doing so, no matter how hard he tried. Looking back, the idea of “freeing” Madarame to some extent implies making it so that he’ll be open to others.
There’s a fairly significant mistranslation in the Crunchyroll subs, at the very end of the episode. After Kasukabe starts to cry, the translation has Madarame say, “Now I know that Kasukabe-san cries easily.” This isn’t quite right: what Madarame actually says is more along the lines of, “I already knew that Kasukabe-san cries easily.” It’s a reference to the events of Volume 4 of the manga (Episode 11 of the first anime), when Kasukabe accidentally starts a fire which gets the club into trouble. Though she put on a tough face, her guilt over the accident caused her to start crying. Essentially, Madarame’s line is supposed to reference how much he’s paid attention to Saki over the years.
It’s probably significant then that Keiko and Saki both notice how Hato pays a lot of attention to Madarame. Or is it?!
Some of the timing of the confession itself turned out different, and there isn’t quite as much impact from Madarame’s response to the line about the relationship that might have been, but I think the episode overall does an all right job of it. The manga devoted an entire chapter to just the two of them in the club room, mirroring previous chapters which did the same.
As for the actual confession and reaction, I could see how Kasukabe’s response could be interpreted as cruel, though I don’t necessarily think so. One thing anime viewers may not be aware of is that Kasukabe’s line about how a relationship with Madarame might have been a possible future is actually also a reference to another series by Kio Shimoku called Spotted Flower. In it, characters very (but not entirely) similar to Madarame and Saki, an otaku and his non-otaku wife who knew him since college, are married and expecting their first child. In fact, the title itself is a reference to them: Madara means spotted (which also explains the Naruto character), and Saki refers to the blooming of flowers. It’s a sort of holy emblem for Saki x Mada fans, but at the same time perhaps incredibly cruel itself for very nearly giving those shippers what they want before collapsing the entire thing like a house of cards.