This is indeed a known limitation.
Quoting from Snap layouts
Incompatible existing file, directory or symbolic link
Layouts cannot replace an existing but incompatible filesystem object. This means, for example, that files cannot replace directories or symbolic links, files cannot replace a directory, and existing symbolic links cannot be redirected to a new target. You can, however, replace a directory with another directory.
While this limitation is unfortunate, especially considering /etc which can have a multitude of unknown files. I think this, along with one more bug, should be lifted with a rumoured rewrite of the algorithm powering snap-update-ns.
When I was testing this, the snap was updated to use a bind mount layout for /etc/gimp so the presence of a /etc/gimp directory did not pose a problem.