The only time I would ask a crowd to diffuse would be in the early training stages of a horse with a severe lack of trust, if the horse is afraid of the trainer that is something that needs to be worked through before dealing with spectators can be tackled,
This is entirely what I mean in my observation. 1. Being what effect does it have on the untrusting horse. I agree, that with an untrusting equine, one on one without spectators would be ideal. But of course, crowds, children, dogs, trashcans.... all would be introduced once the horse has become trustworthy of it's trainer. Many of the troubled equines I work with that fall into the category, have been so violently handled, that they've shut down, or are near to it. I've had one or two go into an absolute panic over people beginning to hang onto the fence and crowd them.. once became so afraid that he tried to jump out of the arena. I explained to my onlookers why the horse was becoming so fearful, and after asking them to leave me alone with him, he calmed down. Once they'd come to trust me, I ask people to re enter the facility.... at this point, the horse is no longer afraid of them, and he's layed his trust into my hands.
With the other horse types, I simply bring forth the question and discussion on whether or not the crowd is having an effect on the horse. Does the proud horse show off more? Does the wild become more timid? Does the aggressive act increasingly vile? It would appear so.