Gaara's character "developed" (i.e. bad guy turned good) on the premise that if you beat the crap out of someone, they'll become your friend. I really liked Gaara as a villain. He has the suckiest backstory of all time, and it made sense why he'd turn vengeful and violent. His reform was terrible. It was all made worse when his backstory got explained away as oh-we-did-it-for-you-because-we-love-you-Gaara!
Naruto, IMO, hasn't developed very much. He's now able to make friends. That's just about the only change. He still sticks to his "ninja way," he still wants to be Hokage, he's still an idealist, he still says he'll save everyone,...etc. I just don't see a lot that was developed. It just seems like all the important character development moments just washed over him and didn't teach him anything, like Jiraiya's death. Perhaps this last arc has just made me cynical, though, so I'm missing the positives.