Since both versions of this story were related by the Previous Rebbe, they are both significant and each contains a teaching that the other lacks.
The answer that a “Jew” of 99 who resolves to become circumcised deserves a revelation of Hashem teaches us the essential point of the story. The mitzvah of Mila is the preparation for the Mitzvos we do after receiving the Torah. These Mitzvos are done with the strength of the Creator. The Mitzvos done by the Avos before the Torah, on the other hand, were performed through the strength of the creations. From the Creator’s perspective, all levels of Jewish souls are equal, therefore, the first version speaks of a “Jew” who is 99.
The second version of the Tzemach Tzedek’s answer is from our perspective, that there are levels of service. The message is that even one on the high level of a Tzadik also must uncover G-dliness hidden in nature by removing that thick cover.
The general lesson from the story and the Tzemach Tzedek’s answer, is that by doing mitzvahs, a person becomes unified with Hashem. Even Jewish sinners are filled with mitzvahs like seeds fill a pomegranate. The word “mitzvah,” itself means connection.
Therefore, when a Jew does a mitzvah, he or she makes the blessing, “who has made us holy connecting us [to Him] through his commandments.” This could cause a Jew to think that he has perfected himself. Therefore, we have the primary lesson from our story--the work of perfecting our service is continuous.
So, whenever a person resolves to “circumcise himself” to reveal his connection to Hashem continuously he becomes worthy for Hashem to reveal Himself to him in the same way as he revealed himself to Avraham Avinu—in a prophetic vision.
[Lekutei Sichos Vol 5 page 86]
The objects utilized in doing a mitzvah after we received the Torah retain their holiness, so too, Avraham’s circumcision. The objects utilized in all the other Mitzvos of the Avos, on the other hand, did not retain their holiness.
