I'm still guessing Sarah made up the whole government thing with Hunt's arm just to sell her story. They lived in a place where people tried making money in any way possible, so that's not too farfetched. I don't think there's a reason to believe the government had anything to do with it. If anything, she would have blamed the master of that freakshow caravan.

In the last episode, Horriblesubs had Sarah describing Hunt's arms as paralyzed. They seem far from that, even if he usually has them hanging.

Connor really was helpless. I still wonder at how he even defeats Gaichuu in the first place.

I too have my doubts on whether Ann will be alright. Zazie's word suggest that the hollow Gaichuu are attracted to heart in an attempt to gain one themselves. If it's to be taken that they are unable to gain one because it all disappears like a black hole, then any heart gradually leeched from Ann should be gone for good.

Defeated Gaichuu always explode with a large number of "snowflakes" though - much more than you'd expect from a single Shindan shot, so one could still doubt whether they are somehow accumulated in the beast without becoming a heart.

The end of this episode was particularly vague on this point, since it's hard to say whether the glimpes of Gausche that Lag saw were from the heart released by the beast (possibly absorbed from Gausche during a fight when he last visited), or whether it resonated with (and was occluded by) Hunt right before he fell, making those images the memories of Hunt/his clothing instead.