I understand this reaction, but I disagree.
I don't like that particular spell (for reasons below), but I disagree that this type of spell breaks the game and/or the rules, and that this type of spell should be disregarded.
Let's agree that a mundane's reaction to The Gift is part of their Essential Nature, or close enough - nothing can change that reaction. Aside from that, the standard reaction to The Gift does not block the effects of Mentem spells any more than those spells can block the effect of The Gift - right?
And what is that reaction? "The Gift has a strong emotional effect on those around the Gifted person, making them suspicious and mistrustful of the Gifted individual, inspiring envy... act(ing) as if (the Gifted Individual) has a well-deserved reputation for dishonesty and unreliability..." (p 75, col ii)
So, as long as a Mentem effect does not pretend to be changing that, it's kosher. So what it can do btr is create an additional, conflicting emotional response or memory - a "love/hate" situation, a "neutral ground" that is less than Gentle Gift enjoys but better than nothing.
A perfect example is a CrMe effect that puts the memory into the mind of the Target that "the mage is an old friend". That's not contradictory to the effects of/reaction to The Gift, so where does that leave us? With a friend that raises suspicion and mistrust - but is still a friend.
And that gets over the initial "fight or flight" reflex. That gets a mage to where covenfolk are - that they still feel extremely uncomfortable, but are willing to accept that they probably are in no immediate danger, despite their gut feeling, as if "long association had overrides the effects of reputation". (See p75, col iii, last full par. re mundane covenfolk/etc)
It's the same as anyone who has ever had "a friend" who's an addict - you may not trust them, you don't leave them alone in your house or loan them money or your car, but they're still "your friend" - at least until they prove otherwise. Exactly like a Gifted Individual with such a "reputation" that can be overcome with time. Or, as another example, like a lot of cowboy or gangster or criminal movies, where "the gang" is a bunch of cut-throats and thieves - but still "friends". Goodfellas, The Usual Suspects, Pirates of the Caribbean, The Wild Bunch. They don't (always) trust each other as far as they can spit, but they accept each other. Won't turn their back, and are constantly on their guard, and won't trust the other's word without good cause - but aren't going to run or start shooting as if they would a similar stranger.
It doesn't "break the game" - the mundane is hardly mind-controlled and their cooperation is far from guaranteed, and for some their gut reaction may still outweigh their (new) "memories". But it does partly solve the problem of The Gift with magic, that "initial reaction" that is so strong. If that's unacceptable in your saga, then houserule around it.