I've not watched any of him at Blackburn, but - if he is to go out on loan again - would returning to Rovers benefit him or does he need to be somewhere else for the sake of progression?
No, think he has to go somewhere better. It's been a really good move for all parties, good minutes and he's produced for them, but they're a midtable side and will probably lose their best player this season in Armstrong. If he was to go to the Championship again it'd have to be starting games for someone like Fulham I think, though he does know the club well. Everyone in the Championship would have him, but I don't think many prem teams would be queuing up to give a loanee 18 year old the minutes we'd want him to get elsewhere.
As I've said before, I think looking at it now, if we're going into the Europa League, it may be a good idea to keep him round and play him in every group game, as well as the League Cup, also keeping him on the bench for the prem. Get to January and if he's impressed but not getting league minutes, perhaps a Prem side take him on. If not, possibly back down to the Championship for 5 months to get regular football?