Right now that seam you're showing there is so perfectly straight and exactly reveals the little pink border around Snow White. if you turn those two blocks back, face to face in the sewing position, do the opposite sides line up? If they're supposed to and they don't, then you'd have to deal with it before going on. It seems to me that the crucial measurement would be across the diagonal of the pink squares. If that's the 8 1/2 inches that you're wanting in your finished dimension, then trimming the seam area down to 1/4" will make sense. If that pretty Snow White block next to it is currently the size it's supposed to be and the other block matches up with it, then it not only seems unecessary to change anything, but would actually mess up the size of the block to do so.
I love your colors. Some very lucky little girl will be getting that one, no doubt.