Yep, that's exactly right. Rarity stopped him by reminding him of an act of great generosity he'd done earlier, just before his birthday, in fact. He'd been saving a heart-shaped lava ruby for himself for quite some time. Dragons eat gems in my world, you see. But when Rarity saw it, she wasn't... quite able to contain how much she wanted to use something that lovely in her designs. He noticed her want, and decided to give it to her, instead.

When he grew into a town-terrorizing monstrosity, he tried to take it back from her. She didn't recognize him at the time, having not been there to witness his metamorphosis, and berated him loudly for attempting to take something a friend had so generously given her. Her words penetrated the greed-haze around his mind and the shock actually reverted him mentally back to how he'd been before the incident.

Somehow, it reverted him physically as well. I still don't fully understand that part.