It would definitely fill a gap. I don't own any 29mm hybrids. I think SRS was the only ones that made one, and at the time electronics were larger and more expensive. I think it makes more sense to skip anything not HPR though, since the weight of the motors tends to create L1 G impulse motors anyway.
For fuel, I'm not convinced it matters all that much at this size. I emailed AlphaHybrids a lot about various options for fuel and grain geometry for 38s and 54s and with the size limitations it didn't seem like there was a lot to work with to increase isp. And if there is no significant benefit, might as well use cheap stuff like PVC pipe. Cast plastics have a large startup cost for the tooling. Unless they can get this cost down, I'm not sure they can make any money using that. A CNC lathe or mill could probably pump out grains from plastics pretty cheaply. Or 3D printing, but that comes with its own issues.
While I'd like to see it happen, I'm not sure there's enough of a market for them to bother with it. Hybrids are interesting and fun, but they have downsides that are difficult to overcome at a price point that makes sense for 29mm projects. GSE is a big one. It's not a big issue for an M motor, but for a H? A commercial H load is about $30 right now for APCP. One would need to fly a fair bit to make GSE costs work out, and there's N2O to deal with as well. Many clubs don't have GSE available, so you have to find a member that has it, is at the same launch, and is willing to let you use it. And in the past, Contrail loads have been the most expensive. This was, in part anyway, due to materials costs. HTPB costs a lot more than PVC pipes etc.. The only reason I mention that is that I wonder if it's a sustainable business for them. I'd hate to see them lose money on it as they are about the only active Hybrid manufacturer. There are also costs in certification and such to consider. They know all this better than I do, I'm sure, so perhaps they have considered ways to deal with it that I haven't thought of. Great if they have.
If they also offered a simple, inexpensive apogee only electronic deployment option people could put on the motor case or similar, it might help a lot. Something like what AT tried with the EFC.